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Why reward with a tax break employers who pay below the Living Wage?

LW_logoGetting a living wage established of £8.55 an hour in London and £7.45 elsewhere – regarded as the minimum needed now to meet the rising cost of living in the UK – is an admirable aspiration.    The persons who will particularly gain are the quarter of all employed women who are paid below this level, plus three-quarters of 18-21 year olds, and nearly half of all part-time workers.   In regional terms it will especially benefit Northern Ireland and Wales where a quarter of all workers are currently paid less than the living wage.   Altogether it is estimated that some 5 million workers are at present paid below the living wage, which is as much as i in 6 of the workforce.

Nor will this proposed Labour initiative have any adverse effect either on inflation or on UK competitiveness in international trade.   Most of the lowest paid occupations are in hotels and restaurants, catering, cleaning, hospitality and social care, none of which are subject to trading competition.   In the case of all these occupations a higher wage will certainly improve morale and commitment, reduce staff turnover and help to increase shrinking demand at a time of cuts-driven austerity   There are however two aspects of this plan which require further consideration.

One is that the goal is to voluntary rather than mandatory, and that businesses that sign up to the deal are rewarded with a tax rebate worth up to £1,000 a year.   This seems unduly generous to firms which shouldn’t have been employing people at sub-living wage levels in the first place.   At worst it might actually encourage some unscrupulous employers to hold down the wages of their employees in order to get the biggest supplement from the government at taxpayers’ expense.   Surely it is reasonable to expect all employers to pay at least such a minimum level of wages without rewarding their meanness with a tax rebate, and the obvious alternative of making it a legal requirement to pay at least the living wage should be reconsidered.

It is also addresses only a small part of Britain’s deeply unfair distribution of income.   The other area equally disproportionately unjust is at the top end.   It would make a valuable addition to this proposal if the prospect of linking the living wage to the average were complemented by linking top incomes to the average by a ratio which might initially be set at 20:1, and then gradually bringing both top and bottom ends closer to the mean over time.

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