Tax breaks for 'living wage' will reinforce inequality

If Ed Miliband believes that giving employers a tax break to pay the “living wage” will restore, in his words, the broken link between “growth and prosperity”, he is even more cynical and opportunist than we thought.

The first thing to say is that the Miliband proposal is a direct transfer of wealth from taxpayers to bosses who pay paltry wages. They would get a get a tax refund if they agreed to pay the living wage rate. This is state-sponsored and funded capitalism at our expense.

Whether you can actually live on £7.65 an hour, which is the new rate outside London, is questionable. More like a subsistence wage than a living one. Even the £8.80 an hour rate in London won’t get you very far after housing, energy and transport costs.

Leaving that aside for the moment, Miliband bemoans the disconnect between increased economic wealth and living standards as if this was something new, or the result of the economic storm clouds that that broke in 2008.

Yet this process of deepening inequality has been going on for much longer than the three years – it seems like a lifetime – that the ConDems have been punishing ordinary people with their austerity policies.

Miliband has borrowed the idea of a tax incentive for employers from the Resolution Foundation, which researches into low pay. But in a report last year, the organisation’s Commission on Living Standards notes that even in the boom years leading up to 2008, incomes were “faltering for a broad swath of

working households”. The report adds: 

“GDP growth was strong, employment was high and inflation was moderate. Yet from 2003 to 2008 median wages flat-lined, average disposable incomes fell in every English region outside London and spikes in the prices of essential goods squeezed family budgets. What happened in these years broke the familiar rhythm of growth and gain for ordinary working households.” 

This “pre-crisis stagnation”, as the report describes it, was echoed in other countries, most notably the United States where wages have been stagnant for a generation, while even in Germany and Canada they’ve barely risen while the share of national wealth going to profits soared. Shifts in the nature of inflation – with energy and staple food goods hitting the average earner hardest – have intensified the cut in living standards. 

“By the time the crisis struck, these shifts in the nature of inflation meant that low to middle income households were typically paying a £400 premium on their annual shopping bills compared with those on higher incomes.” 

What the Resolution Foundation is describing is the impact of the credit-driven, low-wage period of corporate and financial globalisation. During this period from the late 1980s onwards, trade unions were weakened, wages driven down, jobs exported and many public services contracted out to the private sector.

The easy availability of cheap credit and house-price inflation disguised what was happening, until the bubble burst. Now it’s pay-day loans, charity and pound shops and two or three low-wage jobs to make ends meet. Miliband, of course, was a member of New Labour governments whose policies helped create these appalling social consequences of rampant capitalism.

Without the slightest acknowledgement of his own responsibility for where we are, Miliband has set himself the task of saving the system from itself should his populist, pro-capitalism One Nation Labour win the 2015 election.

But anyone with the slightest acquaintance with economics will know that employers will take a tax break and pass on any extra costs in price rises. And if wages rise in this way, the low paid will face a reduction in various state benefits.

The reality is that inequality in Britain is worse than ever because a system in profound post-globalisation crisis knows no other way. Super-exploitation is here to stay until we find a way to go beyond capitalism itself.

  

Paul Feldman

Communications editor

'Recovery' based on low pay and falling living standards

Most people in Britain are struggling to make ends meet. Talk of a “recovery” is designed to deflect mounting discontent, but the everyday lived experience is proving more powerful.

The authors of Low Pay Britain 2013 introduce their findings with the prevailing approved optimism: “As we enter a new phase of economic recovery, the key question for the coming years is whether or not renewed jobs growth will help to reverse or reinforce the apparent longer-term shift towards a two-tier workforce.”

But the statistics they provide tell a different story: one in which the faintest signs of “recovery” are founded upon low and declining wages and living standards, and sharply increasing inequality – just as in the pre-crash period of economic growth.   

Though the report provides none of the context, the policy-enhanced impact on British workers of the power of global corporations to drive down wages during the last quarter of the 20th century can be seen in a single statistic. The report notes:

“From a low of just 15 per cent of employees in 1975, the proportion of low paid workers peaked at 23 per cent in 1996. Since then, the proportion has changed very little  – as at April 2012 the number stood at 5.1 million, or 21 per cent.”

The share of overall value generated in the economy that flowed to workers fell in the credit and debt fuelled period of expansion before the 2007 crash. An increasing share was delivered in the form of profits to shareholders and to those at the extreme top end of the pay scale.  

Policy measures adopted to deal with the impact of the global crash of 2007-8 have ensured that cost of living pressures and low earnings growth combined to form a wage squeeze across the entire earnings distribution.

Since 2009, the number of workers earning less than a living wage – the amount considered adequate to achieve a minimum standard of living – has rocketed, from 3.4 million to 4.8 million in April 2012.

The earnings squeeze of recent years has meant that increasing numbers of workers have found it hard to get by on pay alone. There’s been a gradual rise since the mid-1990s in the proportion of families in poverty in which at least one person is in work.

The median salary in Britain is now estimated to stand at around £21,300, some £3,300 lower than its peak in 2005-06. And projections show no signs of recovery in the medium-term.

By the end of the forecast period in 2017-18, median pay is set to amount to £21,200, still significantly lower than the level recorded at the turn of the century.

Just as the pre-crash period of  “growth” was founded upon worsening conditions for the majority, any signs of post-crash “recovery” are dependent upon low pay, sharp reductions in living standard, and an increased dependence on declining state benefits. 

Unemployment figures have been kept low relative to much of Europe through the growth of part-time working, zero-hours contracts and self-employment. The numbers of self-employed have risen sharply since the crash – but their reported income dropped by £4000 - 28% - between 2001-02 and 2010-11 putting them amongst the lowest earners.

Far from offering any hope, general wage stagnation has meant that growing numbers of workers over the last decade have found that being in work no longer guarantees economic security.

British workers are not alone. Low paid work is a feature of labour markets in all advanced economies and, in part, the growth in wage inequality and therefore in relative low pay that Britain experienced in the 1980s and 1990s was common to much of the developed world in the final quarter of the 20th century.

But Britain continues to stand out as having one of the highest incidences of low paid work in the richer, OECD countries. Workers in Britain are twice as likely as counterparts in Italy and five times more likely than employees in Belgium to earn below the low paid threshold.

Welcome to cheap-labour Britain, where the corporations and the state work hand-in-hand to enhance a capitalist economy based on super-exploitation.

Gerry Gold

Economics editor

Revolt over benefit cuts taking off

If there was ever a government intent on getting blood out of a stone, then it is the ConDem coalition. Yet a revolt is growing over the plans to impose a “bedroom tax” and cuts to council tax benefits from April 1. Some are even suggesting it could be Cameron’s poll tax moment.

Even some Tory councils are disturbed at the implications of the so-called “welfare reforms” which are the exact opposite in their effect. Whereas “reform” means to improve things, these changes actually worsen the plight for hundreds of thousands of people.

In North Yorkshire, it’s dawned on eight Tory councils – including one that covers foreign secretary William Hague’s constituency of Richmond – that council tax benefits will hit the low-paid disproportionately hard. Pensioners are exempt so all the savings will have to come from other groups and these councils have a high proportion of older people.

Resistance is not universal by any means. Manchester, a Labour-controlled council, is working on plans to cut council tax benefit by 15%.

The present means-tested benefit provides assistance to nearly 6 million low income families in the UK, of whom 3.2 million are of working age. From April 1, a new benefits scheme administered by local councils is accompanied by a 10% cut in funding from central government. Councils have the option of absorbing this cut or passing it on. You’ve no doubt guessed which way most have gone.

A report from the Resolution Foundation says: “Almost three quarters of English local authorities, faced with these constraints, are set to respond to localisation by introducing less generous systems of support.” In other words, people who have never had to pay the tax before will find themselves hundreds of pounds worse off over a year.

Unemployed people who pay no council tax at present could find themselves having to find between £96 and £255 a year, presumably out of their pathetic dole money.

A typical single parent with children in childcare and working part-time on minimum wage will face increases in their annual council tax bill ranging from £96 (an increase of 55% on their current payment) to £577 (an increase of 333% on their current payment) depending on the severity of the local scheme introduced, says the Resolution Foundation report.

A typical couple with children where only one partner is in full-time work on the minimum wage will face increases in their annual council tax bill ranging from £96 (an increase of 12% on their current payment) to £304 (an increase of 37%on their current payment).

Then there is the “bedroom tax”, which is also due to start on April 1. Residents deemed receive housing benefit could find that significantly reduced if their social landlord deems that their accommodation is too large for their needs. They are being advised that they should move to a smaller home, take in a lodger or find a better-paid job! A family of seven in Hull could lose £80 a month under the proposals.

Resistance is building amongst tenants to the bedroom tax and other cuts. Tenants in Liverpool have organised a Defend Your Home Against the Bedroom Tax campaign while both Shelter Scotland and the STUC are backing a No Eviction for Bedroom Tax campaign organised by Govan Law Centre. 

In Liverpool, tenants are fighting back against Liverpool Mutual Homes (LMH) who manage 15,000 homes in the city. They have attacked chief executive Steve Coffey for proposing that tenants do odd jobs like litter picking on the association’s estates to help make up the shortfall. Tenants have called a “ruckus” outside LMH for February 7, declaring “We Can’t Pay and We Won’t Pay”.

Writer and artist Penny Anderson believes that the bedroom tax could become the poll tax around the Coalition’s neck. We’ll find out soon enough.

Paul Feldman

Communications editor