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The minimum wage legalises low pay

If you’re over 21, the national minimum wage will increase to £6.50 an hour from October 1 this year. That means if you work a 35 hour week you’ll take home £985.83 a month (incredibly, you’ll pay around £70 a month tax and national insurance).

You will be able to claim tax credits of around £48 a month, if you’re single.

Ed Miliband says Labour will increase the minimum wage to £8 an hour by 2020, which equates to £1071.29 net pay a month (and around £142 a month tax and NI).

So the country’s social democratic party is proposing that if you work full time, you’ll earn just under £1100 a month. Under the current calculations, you won’t receive any tax credits. That’s £1100 to cover rent, food, clothes, transport, bills and council tax. That doesn’t include a pension or any entertainment.

The median rent in Ipswich at the moment is £559 a month. Council tax for a band A property is £89.39. Let’s put aside £100 for bills. That makes your basic outgoings £748.39 a month, leaving £351.61 for food, clothes, transport, entertainment, pension, insurance etc. You won’t be saving.

You see the basic problem here? Labour’s modest increase (around 4.1% a year) is still a million miles from making pay commensurate with costs.

Some employers make a commitment to pay the living wage, which is currently £7.65 an hour. If you were to increase that by 4.1% a year, it’d rise to £9.54. So Labour isn’t even committing to match the living wage over a period of 5 years.

Of course, the existence of a living wage indicates the minimum wage is inadequate. But the fact the minimum wage is legally binding has an unintended side effect: it legitimises, legalises and encourages low pay.

That’s why the CBI argues against increasing the minimum wage, but doesn’t advocate repealing it:

The minimum wage is set at the highest rate it can be without putting job creation at risk at the moment… The national minimum wage has enjoyed broad business support and a move to a politicised US-style system is not in the interest of companies or workers. CBI responds to Labour minimum wage proposal

If Labour was serious about tackling the cost of living crisis it’d need to consider a mix of approaches from:

  1. Increasing the minimum wage to something like £12 an hour
  2. Capping utility and/or transport costs
  3. Increasing tax credits or introducing new benefits. Under basic income rates proposed by Dr Malcolm Torry, our minimum wage worker would at least earn £1140 a month net.
  4. Controling housing costs (most obviously by building millions of cheap–to–rent houses)
  5. Reducing taxes

Of course, you could hope the market sorts all this out, but cheap imported labour, automation, weak worker rights and low union membership make this unlikely. You’d more likely rely on the largesse of a few enlightened employers.

It’s depressing – if perhaps understandable – that Labour is so defensive it feels unable to offer anything more than a few miserable shadows of real policies. But I guess it is at least trying something – let’s just not pretend it’s in any way radical.