Labour’s Living Wage tax break exposes the Tories’ ‘making work pay’ lie

Ed Miliband's Living Wage gamble: It's a stop-gap solution while a Labour government works on re-balancing the economy, but will small businesses go for it?[Picture: BBC]

Ed Miliband’s Living Wage gamble: It’s a stop-gap solution while a Labour government works on re-balancing the economy, but will small businesses go for it? [Picture: BBC]

Just one day after the TUC leader said the Coalition has broken the historic link between economic growth and rising household incomes, Labour has proposed a way to restore it.

Since the recovery began, earlier this year, Vox Political has been pointing out its lack of impact on the poorest households in the UK – readily evidenced by the rise and rise of food banks across the country. This is because any profits are being funnelled up to those individuals who are already earning the most and – thanks to our bizarrely-slanted tax (avoidance) system – into tax havens.

According to the BBC, Frances O’Grady told a conference yesterday that “households are being excluded from the benefits of growth. Unless this changes, the recovery will be meaningless to the vast majority of people across Britain.

She said the government was “desperately short of solutions”.

A Treasury spokesperson said the government’s economic plan (wait a minute! The government has an economic plan? When did they come up with that?) was “the only sustainable way to raise living standards” despite all the evidence to the contrary.

This person also said the government’s plan was “slowly but surely working”, even though the economic recovery has nothing to do with any government action.

But today Ed Miliband, the Labour leader, unveiled a plan that made nonsense of the Tory mantra that the government is making work pay because, instead of cutting benefits to make it seem more desirable to have a wage (even though the amount earned is still a pittance), it will actually add cash to working people’s pay packets.

There is a drawback, in that it means a Labour government will offer businesses a 12-month tax break if they agree to pay employees the Living Wage. A tax break is legalised tax avoidance, and we really have enough of that going on already, thanks to the efforts of the Big Four tax avoidance accountancy firms – KPMG, Deloitte, PricewaterhouseCoopers and Ernst & Young – who happen also to write UK tax law for George Osborne (because he doesn’t know how).

But it’s only for a year while the Living Wage gets bedded in. It’s a stop-gap solution to lift workers out of poverty while Labour introduces long-term plans to re-balance an economy that has already been seriously damaged by three and a half years of crazy Conservative ideological pummelling. Who can predict the harm after a full Parliamentary term?

And the Living Wage is becoming even more desperately-needed in the UK than ever, after a study showed the number of workers earning less than its £8.55 per hour (in London) and £7.45 per hour (elsewhere) increased by eight per cent in the last year (from 4.8 million to 5.2 million).

Mr Miliband’s proposal means private firms would be able to claim back about one-third of the cost of raising their staff members’ wages to the Living Wage. This would be good for the government as it would save money on benefit bills and tax revenues would rise.

But costs to businesses would increase. While these could be absorbed by larger companies, smaller firms might struggle to stay afloat.

It is possible, though, that the wage rise would reinvigorate previously-downtrodden workers (as Vox Political has suggested in the past), giving them a sense that they are valued and a reason to invest their energy in the company’s success.

38 thoughts on “Labour’s Living Wage tax break exposes the Tories’ ‘making work pay’ lie

  1. jed goodright

    “She said the government was “desperately short of solutions”.
    No they are not – they just take all the money for themselves and their mates

    Not convinced that this is a concrete idea – tax payer funded deals only maintain the current situation – we need is real money for real jobs not this sort of subsidised nonsense – how would Milband feel about him being paid this way???? raising wages artificially is bound to FAIL

    1. Mike Sivier

      As stated in the article, it’s a stop-gap solution, preventing people from falling (further) into poverty while other solutions are put in place. It isn’t supposed to last forever.

    2. Mike

      The thing to consider is that this IS real money for real jobs. Sure the first year the tax from the company is knocked on the head, but as of year two they need to start paying it, and at that point there are people in work who are actually earning a decent wage, who are then able to put that money back into the economy through buying goods and such. This means companies further increase their wealth as people are able to spend their money with them. In turn, the tax that the company pays increases, which gives more money to the economy.

      All we need now is for Labour to promise to drop the whole Workfare crap and we might actually have a good few years ahead of us if they get in.

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  3. Big Bill

    It might be simpler just to raise benefits to a decent level. When the unemployed start spending more it’ll raise demand encouraging employers to increase output and employ more people. This will increase tax revenues and lower unemployment.

    1. Mike Sivier

      That doesn’t work on several levels. Firstly, it’s more expensive for the government – it would increase the deficit and there would be no tax return on it. Secondly, it would give working people even less interest in their jobs – they would be earning an even smaller amount more than people on the dole, and some might even be earning less (if you watched the Dispatches programme on how employees are being screwed by employers, you’ll know what I mean). Thirdly – huge PR victory for the Tories who’ll say that Labour would rather put people on benefits than help them into work.

      1. Joe Smith

        No tax benefits? Where did you dream that up from, have you never heard of VAT? If people earn more they spend more, and therefore as most items bought attract 20% vat the government do nicely thank you. Equally, if people buy more, factories produce more and they pay tax!!!

      2. Mike Sivier

        But unemployed people are less likely to buy the items that attract VAT, especially at 20 per cent. Were you not around when these arguments were made, back in 2010 when the rate rose?

      3. Big Bill

        The argument was made that raising VAT punishes the poor more. It does. But that doesn’t mean that giving the poor more money means they won’t buy more things with VAT on it. They would in the normal course of events.

      4. Mike Sivier

        The figures won’t add up, Bill. In order to give more money to the unemployed, we would need many more people in work already, and earning more than they are.

      5. Big Bill

        The government can license whomsover they wish to create money. That’s where the Bank of England gets its license from. The Treasury can create money too, historically it’s created physical pound notes known as Bradburies. It could create an electronic equivalent today. Lack of money is never a problem for a sovereign country. There’s no such thing as runnning out of money or a shortage of money for a country which can create its own. Pretending there is is part of the scam that’s played on us. Increasing the deficit, if we choose to go by that more traditional route, with a view to increasing production isn’t a problem. This is historically evident. It’s what we’ve done before and we know it works. Again, money’s not a problem. Tax returns would increase while benefit payouts would decrease as demand grew and more people were offered and took up employment at worthwhile wages. This is all established. I agree people in work would initially be extremely angry about this as they’d moan about people getting something for nothing. Well in the short term they’ll have to suck it up. When there’s a lot more employment around and at increasingly better pay too they’ll be in a better position to demand more from their employers. Money trickles up rather than down. Any political PR victory will be short-lived as life is breathed back into the economy. This doesn’t mean that the problems society has with banking can be ignored though, in fact it would be more accurate to say that banking’s having a problem with society at the moment. Their authority needs to be overthrown or else they’ll simply cream off the efforts of our endeavours. Again.

      6. Big Bill

        No it wouldn’t. We have fiat currency these days, not commodity-backed currency. If money’s created and pissed up against the wall then that’s inflationary. If it’s created and used to create proportionate wealth, then there’s more money around – whoop whoop – and it isn’t devalued. Money spent into benefits would lead to increased production. There’s your wealth. Anyway, we have the mechanism of taxation to retire money from the economy if we need it. inflation isn’t the big scary it’s made out to be. The cost of living goes up when what’s wrongly called QE is practiced not because the newly-created money hits the streets; it doesn’t. Instead, it stays within the banking network and they use it to gamble on the stock exchange. They compete to buy things like wheat futures which accordingly become more expensive and accordingly so does food and it’s that which makes the cost of living go up, it’s them pesky banksters again. True!

      7. Mike Sivier

        I’m still not convinced – paying more to the unemployed is putting the cart before the horse, as far as I’m concerned. Money does need to come into the wider (by which I mean poorer) population, but paying people more for doing less puts out the wrong message entirely. Would be interested to hear others’ views, though.

      8. Joe Smith

        Let’s raise state Pensions to living wage levels, currently the state pension per couple is £107 per week. This is topped up by largely means tested benefits such as Housing allowance, pension credit etc. by raising state pension to around £16,000 per year per couple which includes cold weather payments, pension credit etc pensioners will have disposable income levels increased. Oh, and we could get rid of government departments administering associated pension benefits.

      9. Big Bill

        Another good idea, and with it we step closer to the ultimate expression of this concept which is the basic income. A political 360s going to be needed for us to get that going, that or we’ll have to find a way of governance that excludes politicians. It’s feasible to suggest something along those lines could arise from the coming chaos. Interesting times.

  4. Joanna

    At least labour is giving tentative Hope, with all the sanctions and cuts across the board the tories are taking every bit of hope away from those who need it most, all people want to do is live a life worth living! Without hope what else is there?
    Before 2010 I had a voluntary job, then the tories happened, I lost my voluntary job and I became suicidal, I don’t have any family, so that was all I had to live for, I’m still trying to hang on in there!
    Thank you Mike for this blog, it has been giving me hope!!

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  6. Bob Archer

    Give Ed clap. thats three ideas hes come up with. Freeze on gas and electric, having a go at the water companies and the living wage. hes got the tory bastards on the run.

    1. Mike Sivier

      Give Ed A clap, surely? I hope you don’t wish an unkind genito-urinary disease on the poor chap! 🙂

      Agree with you about his ideas; he’s on a roll.

  7. hstorm

    Reblogged this on TheCritique Archives and commented:
    Not that the recovery is real – it’s based on yet another debt-bubble that is certain to burst soon. And yes, the ‘Making Work Pay’ cliche is an absolute lie. Most of the changes to the benefit system have negatively impacted on people in work more than the unemployed.

  8. Joe Smith

    Don’t matter which way you turn it Mike, more money in the system by increasing benefits and pensions means more money on the streets and more vat income. There would be savings, DWP could be slimmed down substantially, IDS would be unemployed, administration costs would reduce.Sales of a wide variety of goods would increase, personally, we would go out more, spend more enjoying ourselves, have a few luxuries. Spend a bit on leisure visit friends more, And stop living in this shit hole of an open prison the Coalition has organised.

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  10. Sean

    The biggest problem is that while the wages of the top earners keep increasing, the average worker is lucky if their wages stay static with respect to inflation. A long term solution would be to prevent the long term trend of management taking all the cream off the top, while leaving nothing for the workers.

    Which is obviously a poor strategy long term, because it’s the workers who are the consumers, not upper management, so all this trend is doing is gradually reducing the spending power of companies customer base; which they’re reacting to by further reducing base wages.

    The only way to stop this, and force management to start paying fair and sustainable wages across the board, rather than just grossly over paying the board, would be to pin upper management’s wages to the wages of their workers. Introduce a law that prevents management from increasing their remuneration beyond a certain multiple of their base wage, and watch how quickly base wages rise, while miraculously not affecting the companies pricing or bottom line.

    The old whine from management that increasing the wages of their workers will raise prices, is because there’s no money left in the pot after they’ve shoveled it all into their pockets. Forcing these greedy incompetent parasites to think of their workers is absolutely the right of society, it’s a requirement for our economy’s long term viability and in the long run would be good for everyone. After all we’ve left them on their own recognizance for thirty years now, and all we have to show for it are economic crises, crashing living standards, and some very wealthy tax havens.

    When management want a pay rise, they have to give one to their workers, which lets be honest here, is likely to mean at least an inflation rate rise every year. More money in consumers pockets means the company makes more money, which means it can afford pay rises…

    Compare to our current system, where management takes all the profit and bungs it in a tax haven somewhere, and occasionally wave a below inflation rate rise at those at the bottom. A system that ensures continued growth can only be achieved through debt, which has worked out so well so far, right?

    A cycle that puts everyone on an upward spiral, or one that puts most of us on a race to the bottom, while those at the top shovel the proceeds in their pockets. I know which choice I’d prefer, and which the wealthy millionaire fat cats in Westminster have chosen as well…

    1. Mike Sivier

      I’ve been saying this myself for many months – and in fact was having the same conversation about a set ratio between management and workers’ pay yesterday. There is an argument that some very small firms won’t be able to afford bringing their workers’ pay up to standard but there are counter-arguments.

      1. sean

        I really don’t see how it would harm small firms. If they can’t afford to pay their workers a divisible of management salary, its the management salary they can’t afford. Small forms are less likely to be impacted, because small forms tend to have much lower gaps between worker and owner salaries, perhaps because management has to look workers in the eye if they decided to up their salaries while accreting the workers…

        The problem with a living wage is it gives no incentive for reducing management wages to afford it (so you get price rises), nor does it require management to up the basic wage if they want a wage increase. Tying management wages to a maximum multiple of base wage does.

    2. Big Bill

      Wouldn’t a basic income achieve something like this? If basic needs were catered for then an employer would have to up wages to attract workers at all.

      1. Big Bill

        They’re more open to suggestion on these things there as they’ve already got this http://realcurrencies.wordpress.com/2012/04/19/the-swiss-wir-or-how-to-defeat-the-money-power/ Britain’s like the financial anti-Christ as we’ve got the City of London here, the Hole-In-The-Wall for the financial gang. I doubt we’ll see anything like the Swiss have without the kind of civil disorder not seen since Cromwellian times. The City’s like a financial Death Star, I’m looking but I’ve still not found a weakness. Every thing we could try to do lawfully would be blocked, lawfully. Still, something might come up!

  11. Norm

    The big problem is the country is almost bankrupt. If interest rates rise by more than 2% the government will not be able to meet the interest payments on its debts. The only thing that can be done is to cut Government borrowing big time and that is going to be very painful for everyone except the super rich. Look what happened in Cyprus, their Government just took a slice of everyone’s savings. It will happen here soon so all this talk of raising pensions and increasing benefits is complete nonsense. The country can’t afford it.

    1. Mike Sivier

      The country is not almost bankrupt. We have a sovereign currency and can therefore ALWAYS pay off our debts. My argument with those who want us to increase benefits is that people on benefit don’t produce anything themselves; they only consume. Better to boost producers by increasing workers’ wages, making it possible for them to take on more people and build the economy that way, I think.
      But you shouldn’t believe everything the Coalition parties tell you about interest rates and bankruptcies; they’re trying to get interest rates up at the moment because this will bring the national debt down, in fact. Because the debt is in fixed-price gilts, an increase in interest will bring the cost of these gilts down (if I recall correctly – someone may wish to correct me as it’s been a while since I reviewed this quite complicated information). That’s why unemployment figures are being fiddled, after Mr Carney at the Bank of England said he’d only consider raising interest rates if unemployment dropped below seven per cent.

    2. Big Bill

      Oh good grief. We’re a country, not a business We can’t go bankrupt, for a country there’s no such thing. You should do some Reading Norm, Grip of Death by Michael Rowbotham and Web of Debt by Ellen Brown for starters. Get the 5th Edition if you can, it’s more up to date than earlier versions.

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