Home » News/Views » For employers, subsidies are forever

For employers, subsidies are forever

The assumption that the national minimum wage was good for workers was always wrong. The labour movement’s acceptance of it – embrace would be a more correct word – amounted to an admission that, yes, it is right that capitalism should pay us just enough to maintain ourselves and propagate the next generation of workers. The “living wage” is no different.

We said at the time that the minimum wage would inevitably become, for millions, a maximum wage, and that is what has happened. So much so that even the Conservatives, who opposed it at first, are its new best friends.

In fact, it’s even worse than that, because it turns out that workers have been paying for the minimum wage all along.

When the national minimum wage was introduced in 2004 it was based upon the premise that state benefits would contribute roughly 40 per cent extra to its value. The London Living Wage and other Living Wage Foundation calculations always took into consideration that benefits would be part of any living wage level.

'The promotion of the new national living wage is just sleight of hand'

And the subsidies are huge. The organisation Citizens UK calculated in April that the state (that is, us) is subsidising minimum-wage employers to the tune of £11 billion a year, the amount paid in tax credits and other benefits to make up for the poverty wages. Where Citizens UK got it wrong was its calculation that the benefits bill would reduce by £6 billion if employers had to pay the living wage instead of the minimum wage.

It will still be legal to pay workers less than they can live on. And the living wage will still require subsidies to the incomes of many workers, even if the bill will have been cut by just over half.

But this time the hidden subsidy to the employers comes in the form of tax cuts. Look closely and you can see that the government’s cuts in benefits and its promotion of the new national living wage are just a sleight of hand.

The proposed increase of the national living wage to £9.00 in 2020, coupled with the reduction in benefits, would appear to swop the equation round from poverty wages + benefits to improved wages paid for by the employer with the reduction of the state benefit.

The impression given is that the onus is shifting from the taxpayer to the employer. Not so. Employers paying the national living wage will see their corporation tax reduced by 1 per cent. This will largely compensate them for the rise in their wages bill.

What’s more, employers who break jobs down into blocks not exceeding 17.5 hours a week will not have to pay national insurance, further reducing their costs. So the reality is that the taxpayer, those workers paying taxes, will subsidise the new national living wage. But not through so-called “benefits”.

The employers can put up the “Living Wage Foundation” plaques and the government has got away with another wheeze. Given that only 30,000 of the 30+ million workforce of Britain in 2014 were in receipt of “living wage” settlements, while over 4.5 million were on national minimum wage (plus benefits in most cases), Osborne’s living wage plan is a nice little earner for employers and the Treasury.

When will we realise that the concept of a national minimum or living wage implies an acceptance of perpetual poverty wages in work, subsidised by ourselves, all with a dollop of austerity economic mumbo-jumbo thrown into the mix? We must say “No, it is not right.”