Just written about this Over here

Oh, I thought they were concerned about inflation?

Oh, I thought they were concerned about inflation?

They are also concerned about their client voters.

But surely you just raise the minimum wage closer to an election then? The only thing that this seems to suggest is that they do feel a need help those on lower wages, at least to me. The other negatives that come surely would have been taken in to account.

Only thing I can think of in terms of hidden agenda is if anything to do with poverty is coming up as minimum wage rises bump a few more out of the poverty figures, or something significant is coming in the Budget? I must say that on this subject I’m not really knowledgeable, so it’d be interesting to get a gauge of why this could have been done other than out of altruism.

First let’s get over the idea that the Government publishes the real inflation figure.

Hence my post on my blog ukliberty I think everyone here is over the fact that government picks and chooses which rate it uses to best suit it’s agenda.

Fair enough!

Some thoughts:

I think Labour are behind in the polls and they need to keep up some level of approval rating, and this seems a good way to do that while making the private sector pay for it.

And if people lose their jobs… why, it’s the fault of the evil private sector, isn’t i?

The m.o. of this Government is to make popular decisions so long as they aren’t held to blame for any bad consequences.

Regarding your questions about poverty, I wonder what proportion of people on minimum wage are in poverty?

Now I’m wading out of my depth, but it seems to me Chris Dillow has written some great articles on this.

I’d imagine most of the people on minimum wage are in poverty, given you can’t physically work “Normal hours” and earn the amount of money required to reach 60% of the national average wage. But then that depends on how many of them hold down multiple jobs I guess.

£5.50 an hour x 40 hours a week x 52 weeks a year = £11k per year.

While that’s not a big income – when you add in things like the various benefits available to people in work, and the tax credits available to families – and its fair to say its a pretty decent floor to have set for the economy.

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and people should keep in mind that labour have introduced and consistently raised the minimum wage – sure that may help make them popular – but if democracy serves the poor in this instant should we not be quite pleased about that?

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aaron – the minimum wage has only a marginal impact on inflation – this rise is expected to apply to 900,000 workers out of around 30million – and it will by nature only apply to those with the lowest incomes.

and as i explained on Lee’s blog – minimum wages don’t simply lead to inflation.

Aye, current poverty levels are around £13.5k earnings a year.

Lee

I’m never confident on poverty figures as there are always many different figures flying around – but add in things like tax credits, child benefits, subsidised nursery care for kids, and so on – and the minimum wage should serve as a fairly good platform for tackling poverty.

of course it can in itself never be the answer on its own. That just wouldn’t be practical.

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also – note that if the government scrapped the NHS and gave everyone £2k a year instead – poverty would statistically fall – but people would then have to pay for healthcare.

so poverty in itself is an anomalous stat – and the social ills it causes are not all best solved by targeting the poverty stat.

Tim Worstall points out that with the tax credit system as it is, for many workers that will mean only a 1p per hour increase: http://www.thebusiness.co.uk/trading-floor/542846/innumerates-innumerates.thtml

What they have done is shift some costs from the taxpayer to business. So it could have a bad impact on employment (though probably not much as it quite a small rise), but it won’t make a difference to workers. But hey, it looks nice! And just at the same as they are trying to railroad through the EU constitution too.

We have a regressive tax system. A flat tax would be infinitely fairer…

Why would a flat tax be fairer? It would mean either that people on low incomes paid more tax, or that services got cut. The abolition of the 10p starting rate of tax and cut in the basic rate to 20p isn’t noticeably fairer. Unless what you mean is that it would be good if rich taxdodgers paid the same rate as those on low incomes, in which case fair enough.

I think the rise in the minimum wage is good, and that business needs to contribute a bit more towards their employees and tackling poverty. For those who see this just as a burden, KPMG and Barclay’s have raised the wages of their staff to at least £7.20/hour, plus sick pay, and they’ve found that the gains from extra productivity and lower staff turnover have made it more than worth the extra money in wages.

You wouldn’t pay tax on the first £9-12k or whatever threshold is agreed.

What could be fairer than everyone paying the same rate? You could get rid of rafts of administrative costs to UK businesses, and you could still penalise companies who make super-profits through monopolies and mergers. You would also reward people for working harder and taking marginal promotions at work (a big issue in manufacturing where people refuse promotions because it would impede benefits or be wiped out by tax).

Also, an increase in the minimum wage would do precisely zilch to tackle poverty.

“What could be fairer than everyone paying the same rate?”

This would mean tax rises for people on low incomes and tax cuts for people on higher incomes, right? I think it’s fairer that income above a certain threshold gets taxed more heavily (we can discuss what this threshold should be).

“Also, an increase in the minimum wage would do precisely zilch to tackle poverty.”

Depends how much of an increase. I was talking to people recently whose employers had signed up to the London Living Wage (£7.20/hour plus guaranteed sick pay and other employment rights). They felt that this had made a massive difference compared to getting £5.35/hour.

This increase in the minimum wage does zilch, but if you increase the pay of the lowest paid workers in the country, especially when they make up so little of the workforce, you don’t increase substantially the national average wage while substantially increasing the poor’s wages.

But then as you say this doesn’t do it, and as I think Margin said it’s not simple enough to just look at poverty figures on it’s own.

A flat rate of tax could be fair if the thresholds were correct, but there would still be relative inequalities in the system that exist in the current one.

Aaron

If you have a high no-tax threshold then the rate of tax needed for higher income earners ends up being significantly increased.

That serves as a disinsentive for the development of skilled managerial work and so limits the advancement of the economy.

so while it has worked well in eastern europe at creating lots of low paid jobs for the unemployed – it offers little benefits to an already rich economy with low unemployment – and incurs significant long term harm.

guys

keep in mind aaron has some very under-developed views on economics. As illustrated at http://www.griffindor.org.uk/index2.php?year=2008&month=03&day=05&title=minimum-wage-to-rise-by-almost-rpi

So while he is talking about what is ‘fair’ in the tax system and being dismissive about the minimum wage, this is less about a political assertion on his part and more about his limited (perhaps first year degree level) understanding of economic theory.

Alas it is this ’semi-informed’ outlook that much tory policy in the uk is aimed at right now.

Take the ‘increase tax on some alcohol’ proposal today – this seems sensible to a simplistic understanding of economics – ie the price rises and demand falls. But it ignores completely the elasticity of the good.

note that where demand is inelastic (so for example, alcohol for an alcoholic) a rise in the price of that good means less money spent on other things (for an alcoholic that may mean food).

Margin4 Error

If you have a high no-tax threshold then the rate of tax needed for higher income earners ends up being significantly increased.

No. That’s rarely the case. Usually, in countries that employ a flat tax, increased productivity – and *genuine* economic growth – actually means that the tax rate can be reduced (i.e. from 23% down to 21% or lower), meanwhile fiscal revenues continue to rise.

However, on a personal note, I think a fairly significant reduction in the tax burden is necessary to stimulate the economy (too much of the recent economic boom has been fuelled by spending public money – which is not necessarily a terrible thing, but it’s unsustainable over several economic cycles). I’m afraid this would mean a reduction in spending. But when a government believes that ID Cards are more important than education I would give them less money to spend.

I know a flat tax is an anathema to the left, but really, examples in other countries suggest it can work. As an accountant I can see so many benefits of having a greatly simplified tax system (and no, I’m not a tax accountant). Seriously, how many people really understand the tax they pay? Transparency and simplicity would unshackle the economy.

BTW. No Casting the Net today. Back Monday.

Margin4Error, what do you think of a Citizen’s Basic Income?

Aaron

no no no

You can’t come out with a fatuous suggestion that unverifiable improvements in productivity would allow massive tax cuts for all. Thats a ludicrous pipedream.

At the instance the flat tax came in it would mean a cut in the top rate – a cut in the bottom rate (actually an extension of it to a bigger share of income) – and thus a significant rise in the standard rate (now flat rate) to make up lost revenue.

Because of that the savings in admin (small percentage of the total tax taken) would be a smaller economic influence than the massive disincentive to work in middle income jobs.

The consequences of that increase in tax on skilled workers would be a combination of
1 – people in those jobs taking their skills abroad (with better relative pay)
2 – a rise in the required wage to retain such staff –
2a a lresulting loss of productivity
2b a resulting fall in numbers of such jobs relative to low paid work
3 – a disinsentive for lower paid workers to train

These would send our economy the same way as those with a flat tax system already – towards high numbers of low paid jobs but low levels of high value production.

thats fine if you are moving up to that from where (as an example) Slovakia was in 1995. Its quite another thing to degrade an economy like the UK to that level.
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uk liberty

fantastic idea – but when you do the maths you realise such a massive transfer of wealth would place a nation destroying burden on the productive parts of the economy.

as I’ve said before on this site – if a person can eek out a living on £5000 – then our 60million people would need to be taxed £300billion to pay for that. That’s around a fifth of our economy.

so we then have to tax the economy at 20% with no education, healthcare, infrasrtcutrue or other premiums added to our economic value in return for our high taxes.

high tax nations can prosper only by using those taxes to improve the capital of their economy (education levels, transport, etc) – not by handing that tax out in simple payments.

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and of course – it only takes for some one to complain that a war hero is having to survive at the age of 67 on less than £100 a week and politicians will start to plan the sorts of means related benefits that the system needs to scrap to have any value anyway.

ps

that £5000 would have to pay rent, council tax, food, energy bills, clothing, and so on. There would be no council tax benefit, no housing benefit, otherwise the much vaunted lack of a dicinsentive to work would be lost again and the cost savings that it could partially recover by scrappoing the welfare state would be lost.

Welfare payments currently account for £180bn per year. £300bn suddenly doesn’t seem so far away when you’re halfway there already. If you paid kids half rate and kept the other half in a training account, they’d have access to £45k (excluding interest) to spend on the full (real) cost of a university degree (or other education, remainder released as a lump sum aged 30), meaning that the government could get out once-and-for-all of paying anything towards undergraduates. That’s another £2.5bn + admin costs right there. The remaining £100bn could be paid for by the people who are already working in a decent job – and they can afford it because, well, you’ve just given them £5000…

(Sorry, obviously “approx” £100bn, when one rolls in efficiency savings from not having to pay for so many bureaucrats)