The Living Wage or Citizens’ Income?
We live in a welfare state and the major recipients of welfare are the Corporations. It’s the rich that get the money and the poor that get the blame.
The Corporations pay low wages and expect the state to top up their employees’ wages through tax credits. There’s a similar scam with housing benefit. Employers set wages just like landlords set rents and both expect the state to make up the difference.
The Living Wage
So, the Chancellor has impose restrictions on tax credits. He also claims to have introduced a national living wage, by which he means a version that will not upset the corporate lobbyists. This so-called national living wage is really an inflated version of the minimum wage. The living wage is supposed to be a wage where a family lives without benefits. This new level of the minimum wage does not fully compensate families for the loss of tax credits.
You see if the Chancellor wanted to introduce a genuine living wage, he could offer financial incentives to businesses, to help them pay it. The government could means test businesses compensate them if they genuinely need help. The Corporations would need to use their offshore accounts or bosses’ bonuses to find the difference.
It would be interesting to explore the consequences of businesses going cap in hand to the government. Why should employees accept the blame for their employers’ stinginess? If employers had to make their case directly to government to receive benefits to subsidise their wages, it would be a massive increase in accountability. They would have to pay at a rate equal to or more than the living wage set by the low pay commission. I suspect most Corporations would find the money. It would be small businesses that would need to the financial support. And why not? With the level of subsidy for businesses overall reduced, the state would assist small businesses creating jobs in the local market.
The Small Business’s Dilemma
Without help, many small businesses would go bust if the living wage were compulsory. Let’s say someone opens a coffee shop and employs one person on the minimum wage. That person currently claims tax credits which helps them pay their bills.
The business owner meanwhile lives on drawings from the business, which often means they live on their savings.
One claim about the living wage is if everyone received it there would be more money circulating in the economy. In theory this means more people would have spare cash to buy cups of coffee. Increased pay for the employee is a fixed amount going out every week. Increased takings depend on factors that cannot be guaranteed. Even with more money circulating because everyone is on a living wage, it’s no guarantee the coffee shop would break even.
This is the dilemma facing many small local businesses. Whilst Corporations grumble about paying the living wage, they have more capacity to accommodate such changes.
The idea of grants to businesses who pay the living wage is one possible approach. It would save government money by means testing businesses. The Corporations would need to redeploy some of their offshore profits. It would be very clear they’re the beneficiaries of government subsidies and do away with the illusion it is the poor who are to blame.
Citizens’ Income
A living wage is certainly an attractive model because it would make the Corporations accountable. The alternative would be citizens’ income. Here everyone would receive a payment irrespective of whether they are in or out of work. In work, all earnings are taxed. Employers would be obliged to pay a minimum wage because when people have some income, they are less likely to accept low wages. The government could set the minimum or leave it to market forces to work their usual magic (usually not a good idea).
Citizens’ income resolves a lot of issues for small businesses because their staff are subsidised already. However, citizens’ income subsidises corporations unless they contribute to it. So, tax businesses on the number of people on their payroll and allow them to claim tax credits if this tax means genuine hardship.
Living Wage or Citizens’ Income
Citizens’ income does achieve a lot of what we need, ending welfare dependency and getting money flowing in the economy. However, is it able to make the Corporations accountable to the government in the same way as a compulsory and subsidised living wage? It’s big advantage for local businesses is simplicity, they would have no administration and would not need to apply for grants to subsidise their pay. (I’m assuming my idea of taxing businesses to pay for the Citizens’ Income is not on the agenda.)
Whilst there is a need to debate these two approaches and understand their relative merits, do not forget one thing. The whole system supports the interests of the Corporations. They will resist both approaches because the current system of unaccountable subsidies for Corporations from the state suits them fine.