A mandatory living wage – the debate we need to have

If we don’t raise wages, control rents or reverse welfare cuts, we are going to completely price low paid workers out of London.

Jenny Jones AM is leader of the Green Party on the London Assembly and Green Party Mayoral candidate for 2012

London’s cost of living crisis is affecting more and more people; high rents and childcare costs, low wages and welfare cuts are pricing people out of the city. The voluntary living wage campaign may have won wide support, but now more than ever there is a strong case for going much further. So it’s time to talk of solutions. We must open the debate on making the living wage mandatory, thus replacing the national minimum wage.

Living wage campaigners have generally shied away from advocating a mandatory living wage. By promoting the living wage as a voluntary measure, they have won wide support from politicians, business groups and civil society. The Mayor of London has vocally supported the campaign, and thinks it should stay voluntary.

Counterproductive?

Shaun Rafferty from the Joseph Rowntree Foundation wrote on his blog that a mandatory living wage would be “self-defeating” because “in the current operating environment there are many employers who genuinely couldn’t afford to pay their staff the Living Wage”. He warned that talk of a mandatory living wage “would almost certainly kill the many thoughtful and progressive discussions going on about low pay… in the board rooms of many employers”.

That would be a shame, but I don’t think we should wait for board rooms to set the agenda. Sometimes politicians have to be brave and just do the right thing, particularly for people at the bottom of the pay scale.

I have published a report setting out arguments in favour of a mandatory living wage.

The thought that really set me off down this road was the Mayor of London’s target. He wants to see 250 private companies sign up as living wage employers by 2016. But there are estimated to be over 190,000 companies in London (not counting the self-employed). Even if you just take companies with more than fifty employees, there are over six thousand. The Mayor’s target will be a huge help to those workers affected, but could still leave hundreds of thousands of people on poverty wages.

Company board rooms might think this is the worst time to be introducing a mandatory living wage. The economy is in the doldrums and unemployment is already high.

Cost of living spiraling

But there is another side to this economic slump, and that is the cost of living crisis facing hundreds of thousands of ordinary people. A family renting privately in a cheaper part of London with children in childcare would face bills of £200 per week more than the national average. If we don’t raise wages, control rents or reverse welfare cuts, we are going to completely price low paid workers out of London.

Raising wages would have downsides, including job losses. But one estimate put the impact at 24,000 jobs in London, smaller than the rise in unemployment in the past few months. It could also net the government billions over the next few years through benefit bill savings and extra tax, which could be channelled into job creation schemes like building affordable housing.

We could start with the larger companies, or phase it in by raising the minimum wage more aggressively in regions like London. Some have suggested tax breaks. Strengthening the hand of trade unions could help them win the living wage for their members.

It’s a complicated debate, but it’s one we need to have if we want life in London to be fair, with a reasonable quality of existence for all. I hope the Mayor takes up my suggestion of looking at it more closely.

18 Responses to “A mandatory living wage – the debate we need to have”

  1. OldLb

    Ho hum.

    Politician who taxes people who earn less that a living wage, blames others for her looting of poor people’s money.

    Here’s a simple idea. How about it if you stopped taxing the poor?

  2. Chris McCabe

    Why is there no maximum wage?

  3. Tom

    Somebody working full time on the National Minimum Wage would pay about £22 a week in income tax and national insurance. Many people on the minimum wage work part time and pay no tax already. When the threshold reaches £10,000 there will be almost no scope left to raise take-home pay for minimum wage workers through taking people out of tax.

    If they were paid the London Living Wage they would earn (after tax) an extra £62 a week.

  4. OldLb

    37.5 hour week at Octobers rate of 6.31.

    Total employment taxes, income tax and NI contributions

    1,755.65 pounds.

    That’s a huge dent in the amount of money that person has.

    That is entirely in the power of the state to control. They just stop taking it.

    Ah, but the Living wage isn’t the problem. The problem is an indebted state.

    It’s got 1.2 trillion on the books. Then on top, another 5.3 trillion of pensions liabilities.

    Got to tax the poor to pay for it.

    2,700 a day per peer cost to us for them to attend. 140 days a year means 215 standard british peasants (min wage earners) have to slave for a year, consume no resources to keep the likes of John Prescott in ermine and cheap booze.

    That’s the real reason.

    Then you ignore the basic economics.

    Either you employ someone because they generate profits that exceed the cost of employing them, or likewises with savings.

    If you bump up the costs, then either they aren’t employed, or the company goes bust, taking other people out. If not, then the company will ask, can we outsource or automate.

    For people do generate the profits, that isn’t the case. The company will struggle on, but pensioners get hit with lower retirement income.

  5. kmwilliams

    If all the low-wage workers are priced out of London, who will do their work? If they cannot afford to live in or commute to their jobs.. what happens? Someone has to do this stuff. (Perhaps rich people’s children could volunteer to sweep the streets or work in the factories and shops instead of taking a gap year… get a taste of what life used to be like for the working classes.)

  6. Ash

    We effectively stopped taxing the poor a long time ago by returning any tax they pay to them in the form of benefits and tax credits. This approach has allowed us to cut not just the net amount of income tax they pay, but also the net amount of NI, VAT, fuel duty etc. It has also enabled us to focus the largest reductions in net tax burden on the poorest households, based not just on income but on number of dependent children etc.

    Because of this targeting, this approach is far, far cheaper than using across-the-board tax cuts, such as increases in the personal allowance, to achieve the same end. Reducing the net tax burden by, say, £1,000 on the 20% or so of households that are in poverty (via benefits, tax credits or some other form of targeted ‘tax rebate’) obviously costs five times less than reducing the net tax burden on *all* households by the same amount (via increases in the personal allowance, say) – c. £5bn vs. c. £25bn.

    There *are*, I suppose, ways that you could target tax reductions on poor households without recycling their money through the tax system and paying it back to them, but these would basically involve building the complexities of the benefits system into the tax system (so that individuals’ personal allowances varied according to their partner’s earnings, number of dependent children etc.) And there are all sorts of reasons why that would be a silly way of going about things. Most obviously: it would mean the tax affairs of middle and high earners were needlessly complicated; it would mean you’d need a complex benefits system running alongside a complex tax system, in order to deal with people needing more help in benefits than they currently pay in income tax/NI, with all the implications that has for administration costs; and it would leave the tax burden on poor households from indirect taxes like VAT completely untouched.

  7. LB

    Look, lets take pensions. A 1% per annum charge is a disaster for the fund.

    So here you are saying look, lets tax the poor, and then lets hand it back.

    Have you seen the percentage the the DWP takes out in administration costs?

    It’s screwing people.

    So its green subsidies. Taking from the poor to give to the rich.

    So its welfare. Taking money from a median wage earner deprives them of 475,000 pounds. That’s the difference between their NI invested, and the cost of a state pension.

    The other things that NI entitles you to does not cost 475K.

    Even after that, they still can’t afford to pay the state pension. The ONS put s the hidden off the book, Bernie Maddoff debts at 5,300 bn

    So congratulations, you are driving people into destitution.

  8. Ash

    You’ve switched from talking about the poor to talking about median wage earners. I can’t answer the point about investment vs. NI because I can’t find anything to help me fact check it.

    Sticking to the original topic, though – taxes on the poor – I notice you’ve failed to make any kind of case that simply ‘not taxing them’ is a better option than returning their money to them through benefits and/or tax credits.

    Which is not surprising, because it’s not possible to stop taxing the poor without either 1 – making the tax system more complicated for everyone, or 2 – spending many times what we currently spend on targeted benefits and tax credits on untargeted tax cuts.

    Oh, and then there’s the fact that when you cut income tax and/or NI, a significant proportion of poor people don’t benefit because they don’t pay those taxes.

    And the related fact that much of the tax burden on poor people comes from VAT and other indirect taxes. Halving the rate of VAT in order to reduce the burden on poor households would cost c. £60bn – more than double the cost of the tax credits system. Does that strike you as an efficient way of reducing the net tax burden on the poor?

    You complain that poor people are taxed too much, and then protest that we’re ‘driving them into destitution’ by reducing their net tax burden via the tax credits and benefits sytem. It’s nonsense. If we take £500 from a low earner in NI and then hand it back to them in Tax Credits, plainly they’re in just as good a position as they were before to invest that £500 in the stock market if they like – only now they’re also entitled to a state pension. (I know, I know – it’ll never be paid because of the 7.659 gazillion trillion in off-the-book debt, bla bla bla.)

  9. Ash

    You’ve switched from talking about the poor to talking about median wage earners. I can’t answer the point about investment vs. NI because I can’t find anything to help me fact check it.

    Sticking to the original topic, though – taxes on the poor – I notice you’ve failed to make any kind of case that simply ‘not taxing them’ is a better option than returning their money to them through benefits and/or tax credits.

    Which is not surprising, because it’s not possible to stop taxing the poor without either 1 – making the tax system more complicated for everyone, or 2 – spending many times what we currently spend on targeted benefits and tax credits on untargeted tax cuts.

    Oh, and then there’s the fact that when you cut income tax and/or NI, a significant proportion of poor people don’t benefit because they don’t pay those taxes.

    And the related fact that much of the tax burden on poor people comes from VAT and other indirect taxes. Halving the rate of VAT in order to reduce the burden on poor households would cost c. £60bn – more than double the cost of the tax credits system. Does that strike you as an efficient way of reducing the net tax burden on the poor?

    You complain that poor people are taxed too much, and then protest that we’re ‘driving them into destitution’ by reducing their net tax burden via the tax credits and benefits sytem. It’s nonsense. If we take £500 from a low earner in NI and then hand it back to them in Tax Credits, plainly they’re in just as good a position as they were before to invest that £500 in the stock market if they like – only now they’re also entitled to a state pension. (I know, I know – it’ll never be paid because of the 7.659 gazillion trillion in off-the-book debt, bla bla bla.)

  10. blarg1987

    Hold on a sec, the employee does not pay the employement taxes you quote so that is already crossed out, and you do not factor in tax credits.

    Please recalculate ane supply your new data.

    Cheers.

  11. blarg1987

    Think you will find people on the right will say the markets will provide a solution, what needs to happen is local authorities need to clamp down on number of people per household as no doubt their will be an increase in the number of people sleeping per household that is illegal as costs increase.

    If these things are challanged it will make it more difficult and cause a supply problem which means that wages will have to increase to compensate however with Council resources being squeezed I do not think it will be seen as a priority by whitehall.

  12. Alan Borgars

    Because many of our current MPs/Peers feel too threatened by the corporate lobby to impose one. I definitely will help to get one imposed if I am elected, for the sake of fairness and decency.

  13. LB

    By that logic, you don’t pay VAT, Tescos etc pay the VAT.

    Lets triple VAT because its all paid by the evil corporates.

  14. Steve Hynd

    The Greens advocate a max pay ratio of 1:10 – a campaign Jenny backs

  15. blarg1987

    Well you do know that employees do not pay VAt on the staff they employ which I assume is what you are implying. Also tax credits do possibly take into account VAT.

    So again my point stands that you need to recalculate your figures.

  16. LB

    You don’t pay any VAT do you? Admit it. It’s all paid by Tescos.

    That’s your logic.

    Just as you are trying to claim that the NI paid for the employee by the employer isn’t connected with the employment.

    For example, if its just a jobs tax, why is it calculated as a percentage of wages? Why is it that the money is for the benefit of the employee?

    Answer the VAT one, Tescos write the cheque. Or is it that you shop at Waitrose? You don’t pay VAT then do you.

  17. blarg1987

    Hold on a second are you saying that if i run a company when employing people I pay VAT on employing them? Thats what you seem to be implying.

  18. M

    The problem with a compulsory living wage is that if you put up the amount of money the poor have the Private landlords will put up rents to swallow as much of it as possible other businesses where there are monopolies or supply is outstripped by demand will do the same. The Living wage could actually spiral. A compulsory Living wage can not be brought in safely or effectively without cost controls and then you have to ask your self weather if cost controls are the answer can the required living wage be reduced to a level near the minimum wage with the benefits that would bring to both workers and business.
    -M

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