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Osborne backs minimum wage hike as fundamental to a ‘recovery for all’

16 January 2014

6:46 PM

16 January 2014

6:46 PM

George Osborne’s decision to back an above inflation increase in the national minimum wage is his most politically significant decision since his decision to cut the 50p rate. It also makes that decision far less harmful politically.

Reducing the top rate of tax might have been the right thing to do economically but it hurt the Tories politically. It enabled Labour to claim that this was a government for the rich and that the recovery was only benefitting the few. By contrast, this decision allows the Tories to emphasise that, in Osborne’s phrase, this is ‘a recovery for all.’

There will be those on the dry right who don’t like this policy. They’ll argue that it’ll cost jobs. But there is a strong argument that, at the moment, the government is subsidising companies that pay low wages through tax credits. Raising the minimum wage should enable the government to remove these implicit wage subsidies.


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  • http://www.biologymad.com/ HD2

    The best possible thing to do with the minimum wage is to scrap it.
    Ditto all ‘in work’ subsidies, such as Working Family Tax Credits.

    The Personal Allowance can then be raised to £15k pa and have £27k pa ( = median earnings) as the longer-term goal, with people buying the services they use, from competing providers, with their own money.

    Just like with Car Insurance and Pet insurance (vets provide vastly better service than GPs today)

  • Alex

    Both tax credits and minimum wage raise the wages of the low paid; the difference is that in the first case the taxpayer pays for it, in the latter the cost is on those who employ the young and the unskilled. So this will penalise the firms that employ the people it’s supposed to help. It’s economic stupidity; it would be better to raise the NI starting rate and personal allowance. But as James pretty much admits, with our political class cynical party politics trumps good economics every time.

  • zanzamander

    Rise in minimum wage rate is akin to an increase in tax. But instead of the tax first going into government coffers who then pays it out as welfare and benefits minus the government administration expenses, it is far more efficient to increase the minimum wage and put money in working man/woman’s pockets directly. Also by increasing the minimum wage, it will pull many out of the benefits qualifying threshold, thereby saving a few millions. So all in all a better option to an increase in tax.

  • http://allectus-allectus.blogspot.com Allectus

    There is currently a perception that the NMW should rise because it is the payrolls of large corporates are being “subsidised” through the working welfare system. But this far from the truth.

    According to figures produced in the Low Pay Unit’s own 2012 National Minimum Wage Report, workers in SMEs are disproportionately more likely to be paid the NMW. In “micro-businesses” (those with 1-9 employees) more than 10% of employees are NMW workers; this figure falls to just over 6% in other small businesses (10-49 employees), around 5% in medium-sized enterprises (50-250 employees) and to less than 4% in large businesses (employing more than 250). It follows that the relevant figure for large multinationals (not provided) would be lower still.

    In the light of these figures, and considering that SMEs account for around 44% of total employment in the UK, while the public sector (where less than 1% of employees are on the NMW) accounts for another 20%, it is clear that the great majority of NMW jobs are accounted for by SMEs, not tax-dodging multinational corporates.

    Thus employers paying the NMW are typically small businesses with low profitability, often struggling to compete and even to survive, and which pay their workforce as much as they can afford.

    If the rumours are correct, and Osborne raises the MW to £7 per hour, then taking the example of a micro business with just 6 MW employees, that would represent (assuming no overtime) an additional annual cost to that business of ((£7 x 35 x 52 = £12,740) – (£6.31 x 35 x 52 = £11,484)) of £1,256 per worker, increased to £1,429 when employers’ national insurance at 13.8% is added. Multiply that by 6 workers and the total annual bill for that business comes to £8,576. Assuming that business would qualify for the maximum Employment Allowance (an employers’ NI rebate) of £2,000 per annum, that still leaves this micro business some £6,500 per annum worse off. It is not difficult to see how this will impact on small employers.

    Raising the NMW will cost unskilled jobs and disproportionately impact on SMEs. Why would anyone prefer a situation where taxpayers paid 100% of the upkeep costs of an unemployed unskilled worker on the dole to one where an employer pays a large percentage of those costs and that unskilled worker is gainfully employed?

    • Nkaplan

      Exactly – and this just exposes the nonesense that an increase in minimum wage will reduce the welfare bill – not if it increasese unemployment to a signifcant degree it won’t!

  • The PrangWizard of England

    State control of wages under a socialist ‘Conservative’ government. If this is being forced on business as part of Welfare, transferring costs from the State to business, should employers not be able to claim a rebate from the government if they can’t afford it. Will government bail out or subsidise businesses which need to close or contract, to save the jobs they have destroyed?

    And, I have had a summer, part hours, job for the past three years. I don’t know what the Minimum Wage was when I started but it pays about £2.00 an hour above the present £6.31 per hour MW, and is being eroded. MW jobs get more, my job, worth more than a MW job is being devalued. I imagine my employer may pay more if I ask, but he might not, he might not be able to charge customers more. He may delay some much needed investment, I don’t know. Some conservatives may remember the industrial disputes way back over ‘differentials’ in pay rates. They are contributing to a new battle and to inflation generally. May get away with in the short term, but it is still socialism and a deterrent to free enterprise.

    Could you let me know Mr Osborne, (and Mr Forsyth) if you can set a rate for one set of jobs why not set it for mine? What should my rate be now? And how much should I pay my window cleaner, or my plumber?

    • The PrangWizard of England

      I think my word ‘rebate’ in the first paragraph should have been ‘subsidy’!

  • Maidmarrion

    Surely this is more likely to put the small employers out of business or cause them major difficulties?
    Osborne is not using HIS money to back this policy – he is using OPs.
    Huge corporations ,making huge profits on which they pay minimum tax won’t be bothered but small businesses are struggling now.
    Besides, in not time at all the new minimum wage will be overtaken by a rise in goods and services and then we’ll be back to square one – ’twas ever thus.

    • Tony_E

      Yes, it will be slightly inflationary – but as a lagging factor probably won’t appear til after the election.

      Good political strategy, but not particularly economically effective. All the same, it will probably balance out as the rise isn’t that great.

  • Daniel Maris

    A major hike in the minimum wage phased over three years should be a major element in a programme of reducing welfare dependency.

    • Davidh

      Yes, so long as it doesn’t encourage more employers to hire cash-in-hand, off the books, thereby avoiding any tax and allowing the workers to claim benefits as well.

    • Nkaplan

      We’d be far better of with a Basic Income Guarentee via some form of Negative Income Tax together with supply-side reforms to reduce prices and, in particular, an end to minimum wage legislation that prices the unskilled out of the labour market.

  • NotYouNotSure

    A clear attempt to buy votes, but considering that Labour will always offer more welfare, exactly which voting group are they attempting to win over ?

  • Chris lancashire

    As someone who actually has to pay wages to others may I say that I deeply resent the continued governmental intrusion into something that is no business of theirs. That said, we appear to be stuck with this system and if it takes £7 an hour to keep Miliband out of No 10 then so be it.
    Fortunately, all of my employees are already above this level.

    • Daniel Maris

      Yes, and while they are at it, perhaps they can remove all age limit restrictions on employment – governmental intrusion into your right to employ children is something that is no business of theirs.

      • Tony_E

        When I was 16 I used to work an evening shift unloading trucks for a factory. It was heavy work in often pretty unpleasant conditions (bulkers full of parsnips!). But because the shift was 6-11, I wouldn’t be able to do that now – the working time directive stops under 18s working after 7pm.

        That job got me my first car, bought my wife’s engagement ring, and supported me through collage. I’d have been stuffed without it.

        So you’re right – it’s no business of government to tell people when they can work, how long or for what money. Its for the individual to choose. If I didn’t need the work I wouldn’t have done it. When it got to the stage where I was unhappy with the job, I quit and did something else.

        But then that was before Blair imported a million or more pro EU Labour voters…nothing shifted the balance of power between employer and employee more than that act of national vandalism.

        • Chris lancashire

          In actual fact a bigger limiter on time worked is Brown’s Working Tax Credits. The majority of employees – even those on £10+/hour find the marginal reward of overtime – even at time and a half is not worthwhile.

      • Chris lancashire

        Pathetic.

      • Nkaplan

        That is quite a revealing comment isn’t it. So in your eyes those on low incomes are as children, incapable of making decisions for themseleves and in need of the state to stand in loco parentis.

    • telemachus

      Hear Isabel yesterday
      “One of the most powerful moments in a Gordon Brown speech was in his 2009 conference address when he listed Labour’s achievements. As part of the list, the Labour PM growled ‘the minimum wage’, and as he did, the conference hall went wild.”
      Osborne has not one ounce of originality in his body

      • Chris lancashire

        There are no prizes for originality.
        I have to add that I was one of those who opposed the introduction of the minimum wage and believed it would cost jobs as well as make industry uncompetitive. I was mostly wrong on that and, as far as my business is concerned we have not been affected.
        One, unintended, benefit however is that it probably drives up productivity. This is because, when evaluating capital expenditure investment the payback is reduced the higher that workers are paid thus justifying proceeding with the investment which, 9 times out of 10, is due to reduced numbers employed.

        • Tony_E

          You were only wrong because it was set at a much lower level than was originally suggested in the lead up to its implementation.
          The surprise for me was how little the previous Labour administration used it to raise wages, instead relying on the Tax credit system, which suggests that they knew that the level they introduced would have a very marginal economic effect.

          • Chris lancashire

            You are quite right. At the time of its original introduction (I can’t remember the exact rate) my company paid the lowest unskilled grade around 70p an hour above the then minimum. There were then a succession of above-inflation rises which culminated, for us, on it finally impacting on our lowest grade two years ago. The real problem, however, raised above is Brown’s byzantine tax credit system.

            • Tony_E

              What do you think the effect might be on young workers. Currently, they fare very badly in comparison to migrant workers who are generally older and more experienced.

              Would having greater disparity between the 18-21 year old rate and the over 21 rate start to redress the loss of competitiveness in the school leavers market and reduce youth unemployment?

              • Chris lancashire

                I think in some situations it could be a help in bringing down youth unemployment, however there is already help in the very good apprenticeship scheme which we take advantage of. By the way, in my experience migrant workers (i.e. East Europeans) are worth at least 1.25x a standard British worker in terms of output, productivity and attendance. Sad but true.

                • telemachus

                  “By the way, in my experience migrant workers (i.e. East Europeans) are worth at least 1.25x a standard British worker in terms of output, productivity and attendance.”
                  *
                  Which squares precisely with all reasonable views on immigration
                  We clearly need an integrated policy

                • Chris lancashire

                  Or perhaps a programme to improve the work ethic of unemployed indigents?

                • Tony_E

                  Isn’t the apprenticeship scheme only really a benefit in skilled occupations. What is the impact on the unskilled 18 year old, simply looking to take advantage of his or her physical abilities to earn a living? Is that an old fashioned notion?

                • Chris lancashire

                  Right again. Trouble with not increasing the 18-21 wage is that there would be insufficient incentive to come off jobseekers allowance.

                • Tony_E

                  So therefore to have any impact on youth unemployment, the system would have to move to one of contributory effect – i.e. that until you have worked and paid in, it is very difficult to lodge a successful claim?

      • Makroon

        The last thing we need in these delicate times, is an “original” chancellor (every one of Brown/Red/Balls suggested “innovations” has bombed BTW). It is like pleading for more “creative accountants”.

  • southerner

    Dancing to idiot Millimetre’s tune again and introducing policies to the left of labour. You expect nothing less from the un-conservative party.

    • HookesLaw

      Labour are talking about a ‘living wage’ at a much higher level. The extra over the inflation rise being proposed and is hardly unconservative. Unless you mean that to be a ‘conservative’ you have to pi$$ on the poor.

      • southerner

        Oh so that’s alright then. Labour don’t have a clue about business and will destroy it to pursue an agenda but the social democrat Osborne is doing it a bit less so he must be a true blue.

        Trying to bid with the left is not conservative. Indeed feeling the need to dance to idiot Ed’s narrative at all is further proof, if proof were needed, of the fools at the top of the un-conservatives.

        Cutting taxes, reducing the burden of red tape and smaller government is conservative. Have you ever run a business?

        The fact that I have to point this out only reinforces my doubts about you Hookey. Dear me.

        • Tony_E

          This is a small measure, and doesn’t increase red tape.

          I agree with you about the lack of proper free market initiatives from this government, but sometimes the politics has to played inside the boundaries set out by others.

          And in the end, the Conservatives could be on the end of a drubbing in 2015, returning a huge Labour majority – which is worse?

          • southerner

            It is a burden on business financial and otherwise placed there purely for political one-upmanship. Politics can be played within the confines of your own principles if you have any. The un-conservatives do not.

            If the next election results in the creation of a conservative party then us conservatives will finally have someone we can support instead of the leftist status quo. As it stands, there is no difference between them all on all the big issues.

  • HookesLaw

    When you are dealing with quite a low figure simply increasing something by 69p is not a lot but makes a big %age.

    • southerner

      It’s not a lot to who? Are you a business owner Hooke?

    • Makroon

      Osborne has not suggested increasing the minimum wage by 69p which would be 11%. Inflation is 2%.
      Maybe taking it up to £6.50 (3%) ?

  • toco10

    Taken with the increase in tax thresholds for those at the lower end of the wages ladder this initiative will help those hard working families who prefer to work than claim welfare benefits.It will also encourage people into employment and reduce the welfare burden for the taxpayer.Even the inept Red Ed and his trades union masters should support this excellent policy but I am sure the student politician that is Red Ed will moan and groan like so very many of his trades union backers.

  • AnotherDave

    “Raising the minimum wage should enable the government to remove these implicit wage subsidies.”

    Does the government have a policy of ending/scaling back the Tax Credit system?

  • alabenn

    The Labour Party set about reducing wages as soon as they came to power, they intended all along to flood the country with cheap workers who would almost certainly vote for them, this was pay back because their core white working men/women had started voting for the Tories under Thatcher, Osborne should have done this earlier in conjunction with bumping up the tax thresholds.

    • telemachus

      Instead he reduced tax by 5% for the wealthy

      • Chris lancashire

        You and I both know that Brown only raised the top rate in the last 6 months of his blighted premiership as a political tank trap rather than a revenue raiser. The top tax rate is higher now than it was for over 12 years of Labour misgovernment. And the Conservatives should be ashamed of that.

      • Alex

        Ah, still peddling that irrelevance; bless. The average top rate of tax under the coalition has been way higher than it was under Labour. You know that, we all know that, everybody knows that.

  • Geronimo von Huxley

    Empty meaningless words. No one cares what this muppet asserts he believes in – wages at the bottom are still subsidised and the structural deficit is designed in by default. You had your chance, muppet, in a year’s time you’ll be out of a job.

    • HookesLaw

      ‘the structural deficit is designed in by default’ , please tell us what you mean by that.

      • Geronimo von Huxley

        I would suggest to explore the correlation between rising house prices (supposedly good) and total government expenditure on housing benefits (obviously a rising expense).
        Perhaps it will come as no surprise to anyone that our deficit is not coming down when fixed costs (such as these) are not coming down.

    • 2trueblue

      Probably, and along will come Balls to return us to a total balls up again.

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