Report: Minimum wage would be £18.89 if it matched top pay hikes


by Newswire    
12:02 am - October 1st 2012

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The adult rate of National Minimum Wage (NMW) will today rise by 1.8% to £6.19 per hour. According to calculations by think tank One Society, if NMW had kept pace with rises in top pay, it would already be £18.89 per hour.

According to BIS, the median total remuneration of FTSE100 CEOs rose annually by 13.6% on average between 1999 and 2010.

The new rate means those working full time at NMW will be paid £5000 less than the level which UK citizens think is necessary for an acceptable standard of living for a single person.

This comes on top of a doubling in the proportion of part-time workers classified as “involuntary part-time” from just over 8% to 16% between 2000 and 2011.

Duncan Exley, Director of One Society said:

The gap between full time pay and NMW means more pressure on in-work benefit costs, and means that people find it hard to find money even for necessities such as replacing their old fridge or cooker, or buying a new winter coat or shoes.

“It is not just those at the lower end of the pay scale who suffer as a result of income inequality. Inequality restricts growth by limiting the incomes of those most likely to spend.

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Well, far be it for me to remind everyone once again about the 8 year old concept of cheap labour conservatives – http://sideshow.me.uk/annex/defeattherightin3minutes.htm but it is relevant. As for the disparity in rises, meritocracy allows for and justifies the creation of untouchable elites because they’re ‘worth it’.

I don’t see the point of using FTSE 100 CEOs as a benchmark for UK wages. The index is heavily weighted towards the international economy rather than a domestic focus. The FTSE 100 has lots of miners and resource extractors who are just listed in London without any production facilities here. For example, take a copper miner such as Kazakhmys plc. Almost their entire assets are in Kazakhstan. They just set up their HQ in London and list on the London stock exchange. It is stretching it to call them a UK company. Tullow Oil are listed in London, but all their production is in Ghana, Uganda and Kenya. Vedanta Resources plc, India, Zambia and Australia. There are many more examples just like those ones so benchmarking their CEO salaries is meaningless. Even the UK companies who are on that index get around 70% of their revenues overseas.

What would be a more relevant benchmark to use would be the FTSE 250, that is effectively the UK listed economy. The FTSE 250 has actually outperformed the FTSE 100 since 1999, so it would be interesting to see how specifically UK CEO wages have risen compared to the FTSE 100. The FTSE 100 companies performance since 1999 has been dismal so the wage increases are certainly unwarranted compared to returns for investors.

The new rate means those working full time at NMW will be paid £5000 less than the level which UK citizens think is necessary for an acceptable standard of living for a single person.

That’s easily solved.

Just stop taxing those on minimum wage the £5,000 a year they have to pay in income tax and NI.

Which, when you include employers’ NI is indeed what they are charged.

Simples.

Tim @ 3

Just stop taxing those on minimum wage the £5,000 a year they have to pay in income tax and NI.

Who on the minimum wage pays anything like five grand a year in income tax? As for employers NI contributions any guarantee that employers would pass on that saving to there employees? Would you support legislation to ensure that? Five grand is roughly £100 a week in tax. How much would have to earn to pay that, way above any reasonable calculation for the minimum wage? So, not a proposal to help those on minimum wage but a way of appealing to the gullible for a middle class tax cut?

Now, if you where to reform council tax so that those earning less than £15,000 are exempt from any liability, then we would be on the same side. You are as keen to take the poor out of tax as I am, so no doubt you have radical proposals to switch the tax burden from taxes that the poor really suffer disproportionately from, VAT on fuel really hurts and of course the afore mentioned Council tax really hurts those on modest incomes.

So, any ideas to really ‘take the poor out of tax’? I am all ears.

Jim,

The full explanation with this year’s numbers is here.

http://blogs.telegraph.co.uk/finance/timworstall/100018511/stop-taxing-the-poor-so-much/

Tim @ 5

You can twiddle about with the figures all you want and you will never come up with a solution that means someone on the minimum wage working reasonable hours (say 40 hrs a week) is paying five grand a year income tax and National Insurance.

If you genuinely think that employers would add any savings from employers National Insurance contributions onto the wages of those on the NMW wage then you are rather naïve, or you assume that the rest of are to fall for such a scam.

As I said before, Council tax and VAT are the real killers in terms of tax. Perhaps you could direct your analysis at how council tax, excise duty and VAT affect the poor? What if we introduced a threshold of £12,000 to when you become liable to pay council tax, coupled with a general reduction to 10% on items that the RFT claim to be essential (given that you are using their definition of poverty)? Shifting the liability to those who can afford to pay of course?

The thing is, a substantial percentage of ‘the poor’ who are in employment already get top-up benefits paid for by, well, the poor. A recent study showed that pensioners pay, on average, £400 per month tax (income, duty, VAT etc). So too those on long-term benefits such as DLA. At the same time, tax-credits totalling approx £31billion per year, are paid-out.

I would suggest that reducing/withdrawing all tax credits would give the government/local government plenty of scope to reduce the taxpayer’s burden and all of the poor could benefit.

Jim,
If companies no longer had to pay employer’s NI for workers below a threshhold, the amount could be simply added to the NMW.

The only way those at the top can award themselves an annual 13% pay rise is by imposing freezes and miserly ‘pay rises’ – in other words pay cuts on everyone else. The proportion of the pie for wages stays the same.

Even middle and senior management face that. All so the scum that rises to the top can lord it over us all…

Jack @ 8

They could Jack, but they wouldn’t. We both know that. Any cut in Employers National Insurance will go straight in the pocket of the vast majority cases.

The problem is though, Tim, you are attempting to form a policy based entirely on a deliberately very narrow definition of a ‘typical’ low income family. A cumulative income of £35,000 is not a typical example of what most reasonable people would consider ‘poor’, or at the very least, most people would concede that there are more deserving examples of people living in relative poverty.

Be honest, Tim, you have deliberately chosen to highlight this particular scenario because you are not interested in reducing the tax burden of the ‘poor’ you are cynically using the legitimate some people have for the ‘poor’ to reduce the overall tax burden of income tax.

The typical family on ‘poverty’ wages, as defined in the terms you, Adam Smith and Roundtree trust use, is not two full time employees both earning around sixteen grand each. Most of these poor families are two people, one earning about ten grand and another earning about seven or eight. Families with two (or even one) part time worker(s) are not going to be helped by an income tax cut. In fact, most of the money ‘given away’ by raising the tax threshold (How many billions does that cost the treasury?) does not go to the poorest people, because the poorest people do not pay very much income tax. You could use that revenue to cut the tax burden of more people further down the income scale by targeting those on lowest incomes.

The tax that they do pay is Council tax, even moving slightly above the threshold for a rebate means a modest rise in your income will result in a huge rise in your tax liabilities.

Surely that is a higher priority for those concerned with taking the ‘poor out of tax’?

Jack @ 8

They could Jack, but they wouldn’t. We both know that. Any cut in Employers National Insurance will go straight in the pocket of the employer in the vast majority cases.

and Roundtree trust use

But it is those Rowntree Trust numbers which are used as the basis of calculating the Living Wage.

And my point is a very simple one. One that even Rowntree Trust have acknowledged has some force.

The Living Wage is a pre tax number. If people earning the current minimum wage did not have to pay income tax and NI on their earnings, then the minimum wage would be that post tax Living Wage.

That’s it. That’s all my point is.

“The new rate means those working full time at NMW will be paid £5000 less than the level which UK citizens think is necessary for an acceptable standard of living for a single person.”

The reason this is true is because the current system taxes the poor too damn much.

Now, sure, I then go on to make a political statement. We would solve this situation by taking a lot of people out of the tax net. We should in fact, as my actual political proposal is, insist that the personal allowance, and the NI trigger income, should be the same as full time full year minimum wage. This works both ways. If some dastardly group of tax cutters decides to raise that personal allowance then they’ve got to raise the minimum wage. If someone aiding the workers out of poverty insists upon a higher minimum wage then they’ve got to raise the personal allowance.

But these are two slightly different things.

One is simply an observation about the mathematics of the Living and minimum wages and the interaction of taxes. That’s simply true.

The other is a political proposal and one which of course everyone can have a lovely argument over.

Tim @ 13

The reason this is true is because the current system taxes the poor too damn much.

We agree on that, Tim, we really do, but how much would it cost to raise the current threshold to £12,000? And how much would go to the ‘poor’? My argument would be if we used that money to cut regressive taxation and remove the poor from Council tax using that money then would be far more effective at taking the poor out of tax, or at the very least, shift the burden a bit. The truth is that for millions of the working poor cutting income tax makes little difference, one way or another, because the tax that really leaves them struggling is council tax. Millions of the lowest paid part time staff already pay no income tax as it is and you can spend billions upping the threshold and the lowest earners won’t see a penny of that money, the vast majority of it going to middle income earners. Cutting income tax is a very blunt instrument

There is little point in giving someone on a low income a fiver a week tax cut with one hand and a tenner a week increase on their council tax, is there? By the same token, there is little point in cutting their tax bill if, for example, it ends up that the after hours school club closes, leaving them unable to do overtime because of childcare costs.

15. Planeshift

“The reason this is true is because the current system taxes the poor too damn much.”

You forgot to include council tax in your calculations, which is arguably the biggest factor here.

Also, if we did take the poor out of tax, then we’d only end up with right wingers moaning romney style about the 47% or whatever who didn’t contribute anything to the nation and thus would never vote for a party who’s main basis was tax cuts (for the rich).

Which is why the labour party should adopt your policy ;-)

Interestingly the link I posted @1 claims that ‘cheap-labour conservatives’ hate the progressive income tax like the devil hates holy water. Which is presumably why efforts to ‘help’ the poor with their tax burden tend to focus on income tax (which affects them little) rather than council tax or VAT (which affects them lots). As has already been pointed out, there’s firm evidence from the states that ‘taking people out of (income) tax’ has political consequences – they get reclassified as moochers and parasites.

Stating that a minimum wage would be £18.89 if it matched top pay hikes and inflating the tax to £5K is emotive and doesn’t really get down to the bottom of it. Someone on £6.19 per hour working a 40 hour week will pay around £954 in tax and £634 in National Insurance.

The reality is that £6.19 per hour is a low rate; however a 1.8% salary increase is not bad for these tough times when many have received 0% for a few years now.

I agree with a minimum wage that should increase over time, but do not believe a large increase is the answer to our current economic challenges.

In my opinion the most successful financial experience for society is achieved when credit (credit being cash) is at its most fluid within the economy and divided amongst a larger group of individuals.

The government should be focusing on encouraging fluidity of credit (cash)from those with the greatest wealth (some of whom do not have to work) all the way down on the wealth scale to those on the minimum wage.

This would help alleviate national debt and allow for more socially responsible policies that would supplement salaries of those on a lower wage.

Tim Worstall wants to cut income tax for the following very cynical reason:

Eliminating income tax for people on the minimum wage will mean less tax is available for the Welfare State, so benefits will be lowered to “balance the books”. The consequences of unemployment will be more serious due to the lower benefits so the fear of unemployment will be greater, further disciplining the working class, and allowing employers to reduce real pay and conditions and thereby make bigger profits.
The key thing to remember is the role of unemployment in a capitalist system as described by Joan Robinson in The Times in 1943:

“Unemployment is not a mere accidental blemish in a private enterprise economy. On the contrary, it is part of the essential mechanism of the system, and has a definite function to fulfill.
The first function of unemployment (which has always existed in open or disguised forms) is that it maintains the authority of master over man. The master has normally been in a position to say: “If you don’t want the job, there are plenty of others who do.” When the man can say: “If you don’t want to employ me, there are plenty of others who will,” the situation is radically altered.”
http://thetruthaboutunemployment.wordpress.com/2012/09/17/the-reintroduction-of-mass-unemployment-in-the-1970s-80s/

Except it would harm Tim in the long run, job seeker. With less employment he would be able to drive your ‘wage’ down but he would end up having to cut the price he charges too! Surely nobody in their right mind would curtail the overall market they have to sell into? Unless he is dumb enough to follow the next quarters profit forecast!

Ps Tim I don’t want to think you are dumb It is just a reaction to both what job seeker said and what the majority experience…

Chloe @ 17

Yes and if everyone we considered ‘poor’ lived exactly like that, then the solution would be easy. However, real life doesn’t actually work like that, because those who we consider ‘poor’ live different lives. The couple who both do part time work who rarely earn enough to pay income tax. The one full time worker and the part time worker, whose joint earning take them above the threshold for council tax rebates. The person who has sporadic bouts of temp work who earns money for short bursts and then goes back on the dole for a month or so, finds her council tax rebate is often late and her extra earnings are completely swallowed in council tax.

That’s the problem Chloe, people are poor for a number of reasons, but in the end, poor people don’t pay too much income tax, because even if they reach the dizzying heights for a couple of weeks, you get a tax rebate.

The challenge is not to devise a model for one type of ‘poor person’ that you use to cover a couple of million people. The challenge is to look at the money you earmark for taking the poor out of tax and devising a model that reduces the tax liability of those people we consider poor.

The problem with starting from a position that people who are relatively better off than many as a benchmark is that when you design a system around this one type of person, you obviously miss millions of others.

For me, it appears rather an odd policy that spends billions of quid reputedly to remove poor people from tax ends up helping a single person on £12,875 cut his tax bill by over a grand, yet the couple next door who both are forced to work part time and earn the same together. However, that couple will still be expected to shoulder a huge burden in tax. It would appear that such a policy would have been skilfully designed to omit people on lower incomes entirely and focus almost entirely couples with a combined income of thirty plus grand.

Dissident, you write “Except it would harm Tim in the long run, job seeker” and “Surely nobody in their right mind would curtail the overall market they have to sell into”
Tim has a recent article entitled “Rationing by price does make sense you know”
http://timworstall.com/2012/10/02/rationing-by-price-does-make-sense-you-know/
He says nothing about making an exception for the the price of healthcare or food. The Right can not afford to be honest about the kind of world it wants. That`s why the Conservative election campaign of 1979 used a notorious poster with the words “Labour isn`t working” before deliberately increasing unemployment with high interest rates and cuts.
http://thetruthaboutunemployment.wordpress.com/2012/09/17/the-reintroduction-of-mass-unemployment-in-the-1970s-80s/

@Dissidant – while that’s true there may well be the danger that social hierarchy is considered more important than profit margins.

@ cylux

I have already mentioned the mechanism on other discussion threads. It boils down to one simple sentence. Executives frequently prove themselves to be addicted to power and privilege. Like addicts they need to pursue a bigger & bigger fix just to feel normal…

@ job seeker.

I know, my question was more rhetorical than genuine. I know right wingers suffer wilful amnesia about the true source of the wealth they accumulate!

i think people need to think about this rationally. take for example Karl Marx when he talked about capitalism he thought the unstable lust and thirst for profit would collapse on its self. wrong but why? what capitalism he saw in the 18th century was one with very little government intervention on wages and he thought that business would keep paying lower and lower wages until demand simply dried up and the suppressed masses would rise up (quite shortened but he want into more detail). BUT he has a point in the modern world with wage freezes and corporate tax cuts the demand simply is not there. if we want a balanced and stable economy. supply MUST MEET demand. and if you take a case study for example Sweden it still has a growing economy because it has made sure wages are high so there is a demand. and another Germany which when businesses like car factories cannot afford to keep paying employees in the UK some would be fired BUT in Germany everyone works less to cut costs and the gov pays those ours for them and the workers tend to do something to help the community e.g. helping police firemen or even the TA until the car factories have enough to pay workers again. reasoning to KEEP DEMAND STABLE. people think of the economy to laterally and need to start think much more radically if we are to solve the issues with capitalism.


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