The living wage and the Minimum wage


Sometimes economics and politics come into conflict. Some economists tell you  governments fixing wages higher than the market wage run the risk of reducing the number of jobs. Politics tells you trying to secure higher wages for the many is popular, as none of us likes to see people badly paid.

The economics of wage fixing appears simple. The market should find the lowest wage level for the least productive jobs that are worthwhile for the employer to offer and for the employee to accept. If government says the lowest permitted wage should be higher than the market level, then there will be fewer jobs created and accepted.

The first round effect of a higher minimum wage might therefore be to destroy jobs. The independent body that sets the Minimum Wage has always thought so, and has used this argument to keep the minimum low. We need to ask what of the second round effects?

There may well be better results than the first reaction of a market economist. We need to consider what the winners do with their extra money they get paid. They are likely to spend it, and some of this money will in turn become income in the hands of other people in the same economy. That can help create or protect jobs. Some will be lost to the economy through buying imports. Some of it may displace money that shareholders would otherwise have spent or lent on to others.  There could also be a spurt in productivity. Employers do not have to respond to higher wages by cutting jobs. They could respond by boosting skills and output per employee to justify the higher wage.

When Labour first introduced a Minimum Wage Conservative opposed it, arguing that either it would be set at a low level which would do little or nothing to raise wages, or it would be set too high and destroy jobs. Conservatives instead proposed a minimum income, made up of market wages topped up by tax credits. Labour argued against, demanding employers paid more of the minimum income. Labour then went on to implement the minimum income scheme with much extended tax credits, offering effective pay well above the Minimum Income for people who qualified for the credits.

Thanks to tax, tax credits, state employment and state pay and many other government interventions the jobs market and wages are far from the free market of supply/demand theory. Most think that government offering to put the Minimum Wage up to say £25,000 a year or to current  average earnings would destroy jobs which is why no party suggests doing it. There is more uncertainty about the consequences of the lesser rise the current government has in mind. I accept we want a better paid workforce, and understand the government’s wish to force the pace. Let us hope it generates the productivity gains and better skills and training it needs to do successfully, without job losses. Big companies can help by working with their employees to ensure they work smarter as they work for better pay.


  1. David Price
    September 21, 2015

    If you look solely at wage increase then you restrict your range of actions and greatly disadvantage the self employeed and those living on savings and fixed incomes.

    I would have thought the better goal is a better standard of living rather than simply better pay. In which case there is a much simpler enabler that the government can impact quickly and directly – reduce taxes, starting with VAT.

    1. Lifelogic
      September 21, 2015

      Indeed reduce taxes, reduce waste, reduce regulation, go for cheap energy, reduce employment laws, reduce the many pointless & counter productive jobs, reduce the incentives not to work, reduce daft market interventions and perverse incentives, reduce the inefficient state sector. Reduce the many and large incentives for the rich and hard working to leave the UK.

      That is the way to higher pay and a booming economy.

  2. Lifelogic
    September 21, 2015

    A minimum wage is an absurd intervention by the state in free contracts. Unless it is set very low indeed it will clearly destroy and export jobs. If someone want to work for a certain pay and some one else is prepared to pay them why on earth should the government ban this mutually beneficial arrangement? We have, after all, unpaid interns and charity workers working for nothing at all. Many of the self employed earth very little indeed, the market will decided best.

    The whole idea that one minimum rate is right for the whole of the UK is also profoundly misguided. In essence it is just yet another tax rise in NI and income tax and it will save the government in tax credit and other benefits for the low paid. But it will not raise very much tax as corporation tax profits will reduce and jobs will simply go as they will not be viable. We already have the appallingly designed work place pension overhead forced onto businesses.

    It is yet other foolish market intervention that make everyone poorer in the end. Just like CAP, all the greencrap regulation and subsidies, the poorly designed bank slotting rules, the QE, the endless other employment laws, the litigation lunacy.

    1. Lifelogic
      September 21, 2015

      As E Powell put it to the dreadful disaster that was Ted Heath:-

      Does my right hon. Friend not know that it is fatal for any Government or party or person to seek to govern in direct opposition to the principles on which they were entrusted with the right to govern? In introducing a compulsory control of wages and prices, in contravention of the deepest commitments of this party, has my right hon. Friend taken leave of his senses?

      Clearly Osborne and Cameron are just as daft and Heath was.

    2. Lifelogic
      September 21, 2015

      The government should abandon this foolish intervention in the market. It should also start to sort out the NHS instead, which was once Cameron’s priority in three letters.

      The NHS is hugely inefficient, with delays, incompetence and rationing everywhere. It is deteriorating by the day.

      Start by charging something to those who can pay and get some sensible market forces to work on it. It is currently killing thousands and preventing others from working while they wait ages for often simple and needed operations.

      1. Lifelogic
        September 21, 2015

        Operations that are all too frequently cancelled at the last minute too usually due to very poor organisation.

    3. Lifelogic
      September 21, 2015

      Higher wages come from more jobs being offered. This will come from lower taxes, fewer regulations, far less market intervention, functional banks, cheap energy, relaxed planning and a government that has a sensible free market vision. Rather the opposite of Osborne’s current socialist direction.

      What a choice Corbyn or Corbyn light.

  3. Antisthenes
    September 21, 2015

    As with most things there are winners and losers so it will be with minimum wage those who keep their jobs will of course be better off but their will be job losses. We know the new minimum wage is going to cost at least 60000 jobs I suspect there will much more than that.

    Employers are of course going to look to increase productivity as already it is abysmally lower than it should be. They are not going to train their employees to higher levels as I know from experience that the costs involved in doing so are prohibitive. Employers are going to look to technology, new innovative ways of doing things and seek out workers who already have the skills that will justify the new pay level. I suspect most of those workers will be immigrants whose work ethic tends to be greater that ours.

    Productivity already low and with disincentive to take on workers whose skills do not warrant the minimum wage I foresee unemployment rising at least in the short to medium term. I do not believe it will be catastrophic but it will be significant.

  4. petermartin2001
    September 21, 2015

    In the most literal meaning of the term, workers do have to be paid a living wage otherwise they wouldn’t be able to live. A dead worker, or a worker who has had to resort to criminal activities to survive and ends up in jail, cannot generate any profits for his employer. In addition, the rest of society has to provide the resources for his prison upkeep, which aren’t cheap!

    We also need to remember that all workers are customers too. If the products of the economy are thought of as being for sale in a giant department store then everyone who has made any money in that economy has to spend it. If some earners save some of it, then everything won’t clear and there won’t be a need to produce more. Workers won’t be rehired. So no matter how little anyone is paid there will always be an unemployment problem under those circumstances.

    If some of those who’ve earned money in the UK economy then goes and buys something in the German department store, but many fewer Germans buy anything form our store then again we’ll have a problem that stuff just won’t clear and unemployment will occur.

    So the first duty of govt is to ensure that aggregate demand is sufficient for everything to clear but not too high that we’ll have inflation. That will reduce the numbers of those who either have no work or whose market value is to low to sustain them. In that case we do have to do something to help them out. If need be we subsidise their wages or even provide them with a job.

    We should do everything possible to prevent workers being paid for doing nothing. That’s a waste of a resource from society’s POV.

  5. eeyore
    September 21, 2015

    “We need to consider what the winners do with their extra money they get paid. They are likely to spend it, and some of this money will in turn become income in the hands of other people in the same economy.”

    If, on the other hand, the extra money is not redistributed, it remains in the hands of employers, who may reinvest in to increase jobs and wealth and thereby provide even more benefit to society than mere consumption does. Perhaps one of your learned readers could advise on the economics of these contrary proposals, because I’m sure I don’t know.

    In any case, whose money is it? Is there not a moral principle that money (a valuable good) belongs to its owners, not to the state to spray about as it pleases in its own interests? Are we not getting close to Corbynomics here?

  6. Anonymous
    September 21, 2015

    If we really want a better paid workforce then we ought to stop importing people who are prepared to work for less – a policy which needs topping up by the state if we are to maintain the appearance of being a healthy society.

    The minimum wage is an after thought, to make a failed mass immigration policy work. It also comes to the ridiculous point where those on dole are better off than those in pay – so minimum pay avoids cutting dole in order to keep the gap (actually still unfair on those in work when total benefits are considered.)

    If we weren’t so overcrowded and accommodation prices weren’t so high then people could afford to work for less.

    There wouldn’t need to be a minimum wage.

    This idea is so simple that I can’t help but think that, actually, workers on good pay is resented by some.

    Lord Ashcroft’s book on Mr Cameron gives some revealing insights into dinner club members standing on tables ranting about plebs. This mindset isn’t so different from the scruffy posh (your Geldoffs and Thompsons) who demand that we take in refugees at a rate the impacts on ordinary people far more than it ever will them.

    1. Steve_L
      September 21, 2015

      There really does seem to be a problem with the glut of available labour prepared to work for low pay. One has to suspect it’s a lot to do with immigration. Have you noticed the number of hand car washes that have sprung up in recent years, with crowds of what look like non-uk nationals manning them?

      Surely this can’t be an isolated instance of cheap labour making it more attractive to run businesses or supply services in low productivity low tech manner? This must be having a real impact on our national productivity.

      1. Anonymous
        September 22, 2015

        Steven L – The black economy is not victimless. Someone is seeking unfair advantage over the honest taxpayer.

        Those gaining from the black economy (employing slave labour) are free from the financial constraint of tax and are able to compete unfairly for all things.

        They and their ’employees’ are adding to the pressure on housing and fuelling the need for a minimum (living) wage.

  7. Antisthenes
    September 21, 2015

    I see a steel plant is in financial difficulties and we can do nothing about it because we now live in a dictatorship run by the bureaucrats of Brussels . I suspect high energy costs is a major factor which we cannot do any thing about thanks to the climate change act, the EU and scare tactics of the eco loons. We cannot help the steel plant with a subsidy to offset this cost because of the EU making our government and parliament impotent.

    We can see we are highly disadvantaged by rules, regulations, laws and treaties some of domestic origin but may more from the EU. Which is reducing our competitiveness considerably in this now global economy. It may well be that too high a minimum wage (although there is a case not top have one at all) is the straw that breaks the camel’s back and as business flee to greener pastures significant job losses will turn into catastrophic losses.

    All the time we are seeing things done in the name of improving society and political ideology it is at the same time eroding our economies ability to create decent levels of wealth creation.

    1. Lifelogic
      September 21, 2015

      Spot on.

    2. turbo terrier
      September 21, 2015

      I suspect high energy costs is a major factor which we cannot do any thing about thanks to the climate change act.

      Didn’t seem to worry Amber on R4 this morning.

      What a wonderful chance she has let go by. Stop all the subsidies, let market forces dictate prices.

      What a poisoned chalice she was given with no power to impact on the CCA.

  8. Miss Piggy
    September 21, 2015

    Anybody who has read an o level economics textbook will tell you that labour is just another commodity like anything else. The more expensive it becomes the demand for it tends to go down. Obviously that point is not covered on the PPE course.

    1. petermartin2001
      September 21, 2015

      Miss Piggy,

      O levels are fine, to start with, for 16 year olds, but wouldn’t you want your doctor to have slightly better qualifications than O level chemistry? What you say may be true for a kilo of rice. The cheaper it is the more we’ll want of it.

      But the kilo of rice gets used and disappears from the economy rapidly. By contrast, a human person has to sustain him/herself on the proceeds of a period of work so they are available for the next period of work.

      The kilo of rice is a just commodity but the human worker is more than that. He sells his work by the hour and then uses the proceeds to become a customer for that kilo of rice. He needs to have sufficient purchasing power to afford that rice otherwise the farmer who grows the rice won’t have a market for his produce. The farmer in turn the won’t have the money to provide jobs for other workers on his farm.

    2. Anonymous
      September 22, 2015

      Miss Piggy

      Tell that to Ronaldo.

      You have it completely the wrong way around.

      Labour is expensive where the demand for it is high – and (most importantly) outstrips the supply.

      The bidding always starts low and works up to the highest point that the market will bear. If something is expensive then it is precisely because the demand is there.

      There are, of course, distorting factors such as limited access to a trade through entry qualifications – but none so distorting as a mass immigration policy enabled with state subsidised welfare.

  9. Lifelogic
    September 21, 2015

    A living wage is economic lunacy as any sensible economist with tell you, just another pathetic political stunt.

    What one person needs to live on is clearly very different from another person. Someone still living with their parents or retired on a pension might be very happy with a job they enjoy doing close to their home. Whereas someone with a family, a large mortgage and high commuting costs might need far more to live on. In addition there are huge regional variations in living costs anyway and huge variations in what employers can afford.

    How on earth can a one size fits all, command economy, central decree on a “living” wage level do anything but real harm to people and the economy?

    1. Anonymous
      September 22, 2015

      Lifelogic – One would suggest that living with mum and dad and working into old age should be discouraged in a healthy, aspirational society.

      If old people want to work then they should do so in charities and make way for the young who need the employment. If they are working because they need the money they they are not ‘happy’ to be doing these jobs.

  10. Denis Cooper
    September 21, 2015

    Off-topic, I’ve just read this astounding news in the Daily Mail:

    “Europe has lost control of its external borders, the president of the European Council warned last night. Donald Tusk urged EU leaders to face the ‘brutal reality’ that ‘we as Europeans are currently not able to manage our common external borders’”.

    Yes, and if Hungary tries to defend its part of those EU “common external borders” then it is immediately subject to “worldwide condemnation”.

    1. Martyn G
      September 21, 2015

      Astonishing but the evidence that this is so becomes clearer by the day. We are fortunate in being an island and so easier to defend but only if Mr C and the government have the courage to implement appropriate measures to protect us from unwelcome new arrivals and, especially, to stop the human rights ‘ambulance-chaser’ type of lawyer from preventing us with sending undesirables back to whence they came.

    2. David Price
      September 22, 2015

      Searching for “did Merkel just read out germany’s suicide note” returns an astounding youtube item where Merkel offers her basis for much of what has been going on lately. It raises the question of whether it is actually the case of “want to” rather than “able to” manage EU borders.

      The youtube item begs the question of why Cameron & co believe they will gain anything at all for our benefit attempting to negotiate with people of this mindset.

    3. Anonymous
      September 22, 2015


      This country is now undergoing catastrophic change which will become evident to all soon enough.

      We will undergo dramatic and irreversible economic and social decline in the term of this government.

      There is nothing that our government can do to stop the hoards of aggressive and fit young men we see on our screens making their way here once they have EU passports – just as the street lights go out and the police force gets decimated.

      The middle class areas that voted for Cameron’s government must not be spared the effects of dispersals this time, the working classes have already put up with enough.

      The nation should be addressed about this issue and what will be demanded of it.

      The Daily Mail is revealing background information about David Cameron’s misguided military interventions in the Middle East. And of yesterday’s revelations about his university antics ?

      A young man at play – I’m still ashamed of some of the things I did at that age but they are nothing NOTHING comared to that. How is Mr Cameron supposed to deal with Muslim leaders, them thinking he did that ?

      Just imagine if Nigel Farage had been accused of the same. It would have been 24/7 on the BBC and UKIP would have been finished.

      1. stred
        September 22, 2015

        A fine early example of the Oxbridge elite losing control of the (ex)boarders.

  11. Iain Moore
    September 21, 2015

    The statist interventions in wages are not helpful to the national interest of driving up productivity , its better than having a mass immigration driven low wage low productivity economy , but it is not the best solution.

    The state control of wages in the bottom quartile means that the same labour costs are spread to all the manufacturers making widgets by hand. You have created a Socialist uniformity in labour costs and had no effect on the critical issue of labour supply. If a manufacturer has to work in an environment of wage controls, but with unlimited labour supply, he still doesn’t have to bother training his workforce.

    The only sane solution is to forget about internal wage controls, but have external borders controls that protects the labour market as a whole, and then have the employers compete for workers, which should see the allocation of resources go to the highest value added and productive industries.

  12. David Murfin
    September 21, 2015

    “Employers … could respond by boosting skills and output per employee to justify the higher wage”
    Employees could seek higher wages by acquiring skills and boosting output per employee – how many work to their own maximum capacity? But that means working harder and seeing colleagues made redundant?
    I think the relationships between pay and work are a bit more complex than you imply.

    “offering to put the Minimum Wage up to say £25,000 a year or to average earnings would destroy jobs” I trust you meant the present average? You clearly can’t make the minimum the average unless everyone is paid the same – that’s socialism gone mad – beyond even to each according to his need, from each according to his ability.
    Setting a minimum wage because some present pay is below it automatically raises the average, unless some earning above the minimum get a pay cut. (if employment numbers constant — how fixed is [employment numbers x average pay]?)

  13. Denis Cooper
    September 21, 2015

    I’m puzzled how we’ve slipped from talking about a “minimum” wage, itself always a bad idea in my view, to the debate being about a “living” wage which will be an even worse idea for those who would like to do paid work but have low earning capacity.

    1. Lifelogic
      September 21, 2015

      I notice that all these people who are allegedly not on a “living wage” do not seems to be dying. So clearly they are already on a “living wage”.

      1. graham1946
        September 21, 2015

        I don’t normally comment, but this is beyond the pale.

        What an idiotic comment. Any figures to back that up? You were born a century too late.

        When the winter comes there will, as usual, be an excess of old people dying of the cold usually around 25,000 and we don’t even know the figures for the working poor. Will that be enough for you? Does that suggest to you that pensions are too low? We know they are the about lowest in the civilised world, but hey, so what, just let them die or are you for increasing pensions to stem this death rate? As for comfort, have you ever lived in a cold damp house in the winter in this county or have you simply forgotten your humanity with your success as a clever engineer?
        Whilst you are thinking about it, can you please explain the use of a job which does not pay for the basics of life, where people are losing money every time they turn up for work or why anyone should do one? Some are using credit just to meet the bills and others are using food banks. By the way, would you work a full week for the minimum wage? If not why expect others to do your basic chores?

        1. Richard
          September 22, 2015

          You claim that we don’t know figures for the working poor. Well if you’re asserting that the working poor are dying and therefore require a ‘living wage’ then that side needs to make that argument.

          Saying we don’t know so we’ll assume they are and raise minimum wages isn’t good enough.

          Assuming for a minute that there are people dying on a minimum wage, how do you think their position will be improved when their minimum wage job is no longer viable?

          If I found myself in the position of being out of a job, I absolutely would work for the minimum wage if required to sustain myself/family.

          1. graham1946
            September 22, 2015

            You say you would work for the minimum if required to sustain your family.

            And if that wage does not sustain your family or even cover your costs and you lose every time you go to work by way of fares, loss of tax credits etc.? Work it out – mortgage (or most likely rent), council tax, power food etc and if you could manage on it I’d be surprised especially as so many are zero hours or below 16 hours. Easily said when you are not in that position.

            By definition the minimum wage is not a living wage. True, need varies around the country , but the minimum is in no way sufficient for a main breadwinner especially in the South to decently support his family and is mainly paid to part timers etc, which (mostly big firms) take advantage of by keeping the hours low as well. I find most smaller firms I have dealt with value their employees and pay them better as a matter of course. Jobs which cannot stand the living wage are non jobs and the firms concerned deserve to close and there may be some – it is estimated maybe 60,000 job losses over the whole country , whereas millions would benefit from an uplift to living wage and so would the economy as a whole as they will spend it.
            However most of these jobs are not like this. Supermarkets are a prime example – they make hundreds of millions of pounds profit and pay their directors telephone number amounts, even though their profits are tumbling a little at the moment as they have to face competiton from the likes of Aldi and Lidl who keep prices low and still pay way above the minimum wage. It can be done. They just don’t want to and attitudes like your and Lifelogic who assumes all is well if people are still alive will keep them low. Are you happy to live off the backs of people earning so little, whilst you clearly don’t?

  14. Bert Young
    September 21, 2015

    Wages paid should be the result of demand and supply . An employer ought to have the right to negotiate and secure the labour necessary for his enterprise ; if the employee has a skill that is sought after , he/she will be in a better position to obtain a realistic price for his/her services . I dislike the Government taking a position on this ; it could have the effect of driving production abroad .

    1. Lifelogic
      September 21, 2015

      It certainly will drive some production abroad.

  15. Boudicca
    September 21, 2015

    The law of supply and demand in the unskilled sector of the economy has been broken by the unlimited supply of immigrants from Eastern (and now Southern) Europe. Most are willing to work cheaply because they can limit their accommodation costs by living in overcrowded, multi-rental houses; they can claim Tax Credits and Child Benefit which are considerably more valuable in their home countries than they are here.

    The same applies to skilled tradesmen, where there is also the opportunity to cream off a proportion of income and pay no tax on it whatsoever.

    If the supply of immigrant workers was restricted and a skills/points-based system in operation, wages in the lower-skilled sector would rise naturally. But that means leaving the EU and regaining the ability to govern our own country, so HMG will never do it willingly. We’ll have to make them, by voting OUT.

    1. Iain Gill
      September 21, 2015

      Some highly skilled occupations have an oversupply of workers too. You cannot let large numbers of immigrants in with these skills without displacing Brits from the workforce, which is exactly what has been going on.

  16. Roy Grainger
    September 21, 2015

    I think the government’s policy to introduce a living wage (ie. a higher minimum wage) is necessary in order to be able to unwind the idiotic tax credit system. It is idiotic that the taxpayer should subsidise the wages of people working full-time. Tax credits just gave companies the excuse to reduce wages – it would have taken too long for this effect to reverse if tax credits had been removed without any requirement for increased wages. It is certain some jobs will be lost as a result but it is the best option.

    1. Handbags
      September 21, 2015

      Hoorah! – you’ve got it.

      It’s a way to cut the benefits bill – and politically it shoots Labours fox, the minimum wage.

      Wait a few years for the effects of inflation to take it’s toll – and it’ll be quietly pushed aside.

    September 21, 2015

    (Comment left out ed)
    On a less serious note.The UK Living Wage or Minimum Wage is destined to cause some problems to the 8% profit margin gained by private companies involved in our Care Homes. They threaten withdrawal of their expertise, closure of buildings and are awaiting yet more “welfare” handouts by Central Government to Local Authorities to maintain service provision.The Living Wage or Minimum Wage in the UK will not be high enough to attract employment applications from the Syrian migrants who will land here shortly. They are accustomed to better things.

  18. JJE
    September 21, 2015

    The Government is pushing through this increase in order to reduce the welfare bill. It has been subsidising low pay through welfare top ups. This welfare cost is being transferred to employers.
    Therefore the net increase for the low paid will be minimal. They will get more from their employer and less from the government.
    The second order effect will be the increase in other wages that employers make in order to maintain differentials so that supervisors are still paid more than their staff. Next have identified this as the major component of the costs that they will incur. As a very well managed company they have probably thought things through most thoroughly.
    The hardest crunch will be in the low paid sectors such as care homes where clients and councils can’t afford the increased bills.

    I see that the appetite to buy UK gilts is running dangerously low. Partly because of the sheer amount of government borrowing and partly because government regulation is preventing banks from taking risks like holding UK government debt! They can’t take the risk of having the debt on their books when interest rates rise. Yet another reason for the BoE to just get on with it.

    1. Denis Cooper
      September 21, 2015

      Get on with what? Buying up more surplus gilts with newly created money?

      1. petermartin2001
        September 21, 2015

        We get by on the productive capacity in our economy. Our ability to grow food, build houses, make cars, run the transport network, run the education and health services etc.

        This is done with combination of human effort and natural resources. So just as we wouldn’t want see our natural resources wasted we don’t want to see people hanging around with no work. That’s a waste too!

  19. Iain Gill
    September 21, 2015

    If the market was allowed to work correctly the rental value of social housing in places with next to no jobs market would collapse. As would private rental property. This would lower the amount of money people needed to live in such places, and attract new employers to the area able to use cheaper workers. Its the fact the government has broken this simple cycle which keeps these areas jobless.
    Pay needs to be regional, government imposing nationwide floor pay bands means the pay is far too low in the South East and far too high in other parts of the country. Immigration and the way work visas are being handed out is flooding the South East with cheap workers from abroad prepared to live in overcrowded substandard accommodation, while at the same time we put in place barriers stopping our own unemployed workforces in other parts of the country from moving to where the jobs are.
    People who had large families while having a realistic expectation of being able to fund them but fall on hard times through illness or death etc need to be looked after, while at the same time couples having no realistic prospect of ever earning enough when getting pregnant should not be getting more money than average working families in their part of the country. If you want to push wages up you stop importing cheap workers from abroad! If you want to fix the overall problem the real key is to fix the sink schools! Sink estates with sink schools are going to be a perpetual drain on our resources if we don’t fix the problem by radical improvement of the schools to allow the next generation to contribute!

  20. Ian wragg
    September 21, 2015

    While ever the state tops up income, companies will continue to pay the minimum possible. With Gideons stupid living wage it will act as a further pull factor for immigration. Government should get out of the way just setting an absolute minimum and stopping all tax credits. The same can be said for housing allowance. Why should an immigrant be given free accommodation in London when someone working there cannot afford to buy or rent and has to pay a fortune to commute. Government intervention has been responsible for the displacement of Brits in our major cities and created ghettos.

    1. Narrow Shoulders
      September 21, 2015

      The same can be said for housing allowance. Why should an immigrant be given free accommodation in London when someone working there cannot afford to buy or rent and has to pay a fortune to commute.

      Quite, I have never reconciled the idea that someone choosing of their own free will to come here and work should be entitled to wage top ups when they find that the wages do not fully cover living expenses.

      Free choice to come, to stay, or to go. Why subsidise them with tax credits, housing benefit or child benefit (or free schooling and free health). Madness.

  21. Kenneth
    September 21, 2015

    When the minimum wage was introduced it was coupled with an unprecedented in increase in public sector recruitment which masked the damage that this has done to our economy and to job prospects.

    The BBC has long put forward to false narrative that this was a successful policy and has managed to persuade many in the Conservative Party as well.

    There is nothing wrong with our economy competing on every level. Having low paid work does not exclude high paid work. Providing work for low skilled people doesn’t stop us producing high quality products from high skills. They are not mutually exclusive.

    We need to attack markets at all levels and allow the market to freely dictate the levels of pay. The more the government intervenes the more the grey and black markets grow.

    Forcing low skilled people out of work will ultimately allow the rich to get richer and the poor to get poorer, or will force the poor onto the wrong side of the law.

    I, for one, will not vote for a political party with a wage control policy.

    1. libertarian
      September 21, 2015


      Great post, at last someone else who recognises the RANGE of possibilities and pay levels across ALL sectors and areas

  22. English Pensioner
    September 21, 2015

    “A Living Wage”. Surely this is vastly different for a single person than for a couple or even a couple with children? An employer can’t be expected to pay a different wage to employees dependent upon their family size

    That, presumably, was why governments have introduced benefits and tax allowances so the employer could pay the same wage to people doing the same job.
    As the low earners pay little tax, their situation is not ameliorated by tax relief, so it would seem that the state has no option but to provide relief in some other form, and any government’s aim should be to ensure that those trying to earn their own living are supported whilst those who hope to sit back and do nothing receive the minimum possible.

    It is worth looking back at history, something few politicians seem to do. Prior to the 20th century, assistance in the form of Parish relief was the norm and paid out by the “Overseers of the Poor”. One rule generally applied was that “No man on relief shall get more than the lowest paid working man in the parish”.

    Towards the end of the the 1700’s there were problems due to the high price of bread, and an arrangement known as the “Speenhamland” system was introduced, where relief was paid according to the price of bread. This worked for a while, but it led to the farmers depressing the wages of agricultural labourers (the main occupation in Britain at the time) so that the parish was effectively subsidising the farmers. This, of course is the problem with tax credits, it can be argued that all they do is to subsidise companies paying low wages. So the problem has been with us for well over 200 years, and no-one has found a satisfactory solution!

    And that is without considering the problems of the irresponsible parents who have large families that they cannot possibly afford even if they actually got a job. The living wage wouldn’t support many of these, so there is the option of paying them more or taking the children into care, which would cost the state even more. In Victorian times such parents would effectively be “named and shamed” and then ostracised by the community, but now there seems to be no shame in living off the state.

    Good luck to anyone who can find a solution which is fair to the taxpayers and not capable of abuse.

    An afterthought – In your last paragraph you say:
    “Most think that government offering to put the Minimum Wage up to say £25,000 a year or to average earnings would . . . . . . . . . . . .”
    How can you put it up to average earnings? Surely mathematically it can’t be done unless it is also the maximum wage!

    Reply You can put it up to current average earnings, which then leads to a rise in stated average earnings!

    1. David Price
      September 22, 2015

      “Reply You can put it up to current average earnings, which then leads to a rise in stated average earnings!”

      I don’t see how this is workable, I am self employed and no matter what those in government dictate I can’t magically increase my earnings simply because you say so. I would have to work significantly more hours or change my business to meet your arbitrary targets rather than what the market demands.

      What you are advocating is of sole benefit of the corporates and unions it will have no real benefit for anyone else.

      Stop meddling.

      Reply I was not proposing doing that! I was making your point that it does not work!

      1. David Price
        September 22, 2015

        @reply, apologies if I misunderstood your point which seemed to mean the opposite.

  23. Bob
    September 21, 2015

    Without a peg to the tax free personal allowance the govt writes a cheque to the Treasury each time the minimum wage is cranked up.

    Apart from the minimum wage being subject to tax and NI, those above the minimum wage will also want their pay differentials maintained, ie between the cleaner, the shelf stacker and the manager. This again means more tax revenue for the Treasury, and ultimately, prices will rise to pay for it, leading to price inflation, which I guess is what the government want due their reckless print, borrow and spend policies.

    What was the quote about running out of other peoples money?

    1. Lifelogic
      September 21, 2015

      Indeed – but do not worry Cameron is a heart a low tax conservative or so he claims. Except he is alas clearly neither.

  24. Rob K
    September 21, 2015

    As someone who favours free markets, I oppose the notion of the minimum wage. However, while we have an extensive range of in-work benefits to low paid workers, I think a higher minimum wage is appropriate. Otherwise, the state is simply subsidising bad employers whose businesses can only function by paying uneconomically low wages.
    If we could move to a system where in-work benefits were phased out then one could imagine a much more egalitarian distribution of income. For example, some businesses would be unable to function in central London unless they paid much higher wages. The pricing mechanism would mean that either they would have to pay from their profits or relocate. If they relocated then economic activity would be more evenly distributed around the country.

    1. Narrow Shoulders
      September 21, 2015

      For example, some businesses would be unable to function in central London unless they paid much higher wages. The pricing mechanism would mean that either they would have to pay from their profits or relocate. If they relocated then economic activity would be more evenly distributed around the country.

      This is an interesting hypothesis and of interest tot he Chancellor in creating his Northern powerhouse no doubt.

      As businesses move away from London so accommodation will become cheaper and businesses will pile back in or new businesses will rise to take their place.

  25. stred
    September 21, 2015

    The living wage will have to increase rapidly when energy costs are raised and we are forced to use electric cars over the next 20 years. George Osborne seems to be competing with Gordon Brown as the most disastrous chancellor in recent times. He has seen fit to ignore all the advice on the web privately given by industry engineers and has confirmed the order for the EDF/Areva nuke at Hinkley Point, saying that it will not be huge drain on taxpayers money. Perhaps he is saying this because it will be consumers paying the double cost inflation index linked price, or because he believes the Corbyn school of economics, which believes it was not taxpayers money but the government’s.

    The design is years behind schedule, the casing of the first one has been condemned by the safety experts and it will have to be built differently. The cost is double the price agreed by the Finns to build a Russian design, following their own disaster with this French reactor and there are smaller modular reactor on the way which can be put mostly underground and will be factory produced at lower cost. Engineers have been making this information public, but the media class is hardly interested. The civil servants at Decc seem to be unable to understand , have rings run around them by the big companies and are agreeing contracts which will be as bad as the PFIs are for the NHS.

    Meanwhile they are building their Cycle Superhighway so that they can pedal from their houses in Islington and Camden to Whitehall, while they laugh at the cars, taxis and vans stuck in one lane jams. While in such a jam yesterday, one of Boris’s new hydrogen buses went past. When the hydrogen is made, where does the electricity come from Boris? If it comes from windmills, where does the rest of the electricity on the grid come from, that the rest of us use. Answer, gas, coal and a bit from rapidly ageing nukes.

    1. Lifelogic
      September 21, 2015

      No only that but the process of producing the hydrogen and storing it is hugely expensive and very wasteful of energy.

      1. Hefner
        September 22, 2015

        Lifelogic, I know you are very intelligent and can comment on all topics with wit and deep understanding of all aspects, but I would beg to differ with your above statement: there is a wealth of different techniques to produce hydrogen: natural gas reforming, gasification, electrolysis, fermentation, high temperature water splitting, photo biological water splitting, photo electrochemical water splitting, and not all of them are “hugely expensive and very wasteful of energy”.
        Maybe it would be time for you to take a refresher course on energy-related topics, or alternatively stop talking rubbish.

        1. stred
          September 22, 2015

          Hefner. Presumably you have a scientific background, with all the detail provided. I am not qualified as an engineer but have you read the chapter on Hydrogen in Sustainable Energy. It is by no means favoured as the best solution for energy storage. The atom is the smallest and tends to leak. All of the production methods require energy input or equivalent loss of other fuels, the conversion in burning or fuel cells loses more and electrolysis uses electricity off the grid, or from renewables, which would otherwise contribute to the grid. Transmission loses more and the tanks and fuel cells take up more space than a diesel fuel tank. The whole sum has to be done, as with Prof MacKay’s calculator for American woodpellet burning in Europe, which has cause some Americans and Greens to reject it.

  26. miami.mode
    September 21, 2015

    An extremely complicated problem but minimum earnings are practically meaningless to those that can claim tax credits or housing benefit so you could almost say that the government does nothing to encourage education, skills, or training.

    Consequently it’s only those with personal ambition that progress and hence the number of foreigners/immigrants working here.

    1. Narrow Shoulders
      September 21, 2015

      Someone on the minimum wage will be able to take home (net not gross) £36K under the Universal credit scheme. How is that encouraging workers to upskill?

      Eastern Europeans – come on down.

      1. Hefner
        September 21, 2015

        Could you please give some more details how you come to this result, assuming a full-time job of 170 hours worked per month at the next April minimum wage of £7.20/hour. Please explain in details how from a salary of a bit more than £14688/year you get to your net £36k, as I think I am missing something.

        1. Narrow Shoulders
          September 22, 2015

          Search Universal credit calculator online.

          Input full time minimum wage salary

          Input costs of three bed house

          £36K comes out.

          You are missing something. (As am I because I have to earn my living, I would much rather stack shelves for £36K take home).

      2. Hefner
        September 21, 2015

        Could you please give some more details how you come to this result, assuming a full-time job of 170 hours worked per month at the next April minimum wage of £7.20/hour. Please explain in details how from a salary of a bit more than £14688/year you get to your net £36k, as I think I am missing something.

        For somebody single aged 25+, on
        under “Tax credit entitlement tables: working and have no children”, the table published on 13 March 2014 (or the calculator accessible on the same website) gives a tax credit of “zero”.

        So, question, how do you get to the £36k net?

        1. Narrow Shoulders
          September 22, 2015

          3 children (2 different sexes), 3 bedroom house minimum wage, 35 hours you can do it yourself.

          1. Hefner
            September 22, 2015

            So you are not honest, you moved the goalpost: your original posting implicitly referred to a single person (“Someone on the minimum wage”).
            Now you are talking a family with 3 children.
            As it has been heavily commented before, most of the immigrants on Europe’s borders are single men.

          2. Narrow Shoulders
            September 22, 2015

            I talked about Eastern Europeans not immigrants from outside the EU’s borders.

            I am someone and I qualify for £36K take home if I could only get on the Universal credit gravy train. Which I would if I turned up on Wiz air with my three kids.

            We can continue your hair splitting if you like.

  27. JimS
    September 21, 2015

    I don’t believe that there is a huge span of human ability; a good runner is not an order of magnitude faster than a poor runner for instance.

    Why not set a ratio for highest pay/lowest pay? Some years ago we were told of a company that collects rags to send to Africa, (wrapping good stuff around bad to cheat the African bidders!!), that paid its directors million pound salaries and the bag-lifters minimum wage. If a business is too poor to pay a decent wage to its lowest paid then it surely can’t afford high ‘compensation’ for its directors.

  28. oldtimer
    September 21, 2015

    Whatever the government may propose, in the end it is the employer and the employed (the market) who dispose – either by hiring, not hiring or firing (the employer) or by accepting or rejecting the work and pay on offer (the prospective employee). Government intervention merely serves to distort the market – but ultimately it cannot buck the market.

    The tax capacity of the UK offers a parallel example. A study of UK tax revenues, over a 50 year period between 1964 and 2013, revealed that the actual tax take as a % of GDP mostly fell within the range of 34-36% of GDP, with occasional excursions above or below. During that same period the top rates of income tax rates were tinkered with from a high of 98% to a low of 40%. This made little difference to the actual % tax take What happened is that taxpayers changed their behaviour in response. Lower tax rates encouraged market growth and with it a higher actual £ tax take. Higher tax rates had the reverse effect.

    The sooner the political class recognises these practical limits, that it does not know best and provides a more neutral tax regime, the better off we shall all be. But given the busybody, we know best, arrogance of the political class that is unlikely to happen. The same is true of its attempt to influence wage rates and levels. Employers and the employed will change their behaviour in response – the market will decide.

    September 21, 2015

    Like the Curate’s egg there may be redeeming features of a Corbyn government if such ever comes to pass. An increase in the Living Wage or Minimum Wage coupled with its immediate enforcement in the Church of England: a simultaneous cancellation to the millions paid by central government for the upkeep of Church properties which will be withdrawn until such time The C of E and its former Archbishops engage in silent prayer to stop themselves advocating the bombing of countries and their people such as Syria. In short, to have a Socialist God Imposter nevertheless redeliver their moral compass which is an Absolute device for direction and not a Relative Point of Entry for debate resting on the shifting sands of national political expediencies of the day.

  30. Rods
    September 21, 2015

    The big problem with working and child tax credits is that they are an incentive for employers to pay the minimum wage, with the Government and taxpayers subsidising them with tax credits.

    What brought this home to me somebody I know who runs a shop offering an assistant a wage rise and them telling them not to bother as they would be no better off where their wage increase would result is a like-for-like decrease in tax credits! What this is in effect doing is making higher taxes for industries paying higher wages, subsidise those industries paying minimum ones, which is bad news when trying to create higher skilled and paid jobs in the UK rather than elsewhere in the world. With the UK’s current balance of payments problems this is especially important if the jobs are one to many products or services.

    This shows that the Government’s reform of the tax credits, minimum and working wages looks like a sensible one and reversing Labour’s increases in employer NI in the future, should help to stimulate the creation of more jobs in all industry sectors.

  31. Peejos
    September 21, 2015

    Prices for most products are calculated basically on what the market will bear, irrespective of the true cost of production. The difference is true profit, the foundation of capitalism. If the seller has n’t set the price right then the product, whether tangible or intangible like service, won’t sell and he will have to adjust to a more acceptable level.

    Raising the minimum wage by statute means more spending power, which means that what the market will bear will rise soon afterwards. The short term benefit to both parties in the transaction is transitory and illusionary. The proposal is an excellent example of concepts thought up by those cushioned by guaranteed permanent employment, and apart from shooting the Labour Party’s fox does not reflect well on the Conservatives

  32. William Long
    September 21, 2015

    Any state intervention in market forces shoud be looked on with utmost suspicion. Isuspect one of the unintended consequences of this one will be caused by the fact that it applies national taking no account of regional variations. Therefore the greatest adverse effect on employment will be in areas that can least afford it such as the North East and the far South West – a smack in the eye for the Northern Power house?

  33. A different Simon
    September 21, 2015

    Both the Govt and Labour is missing the point .

    UK wages are 3-6X those in the developing world .

    UK wages should be living wages but they are not because of the high cost of accommodation .

    The solution is to reduce the cost of accommodation so that the UK can become more competitive .

  34. A different Simon
    September 21, 2015

    If you want to raise UK wages then it must be done by devaluing the pound .

    Exporters like myself are really suffering .

    Between the 1930’s and mid 1970’s the finance sector was properly regulated and increases in productivity lead to improvements for the workers in the real economy .

    From the mid 1970’s till now finance has been deregulated and increases in productivity accrue entirely to the City and Wall Street and the financial health of the real economy has gone down the toilet .

    “Productivity” is just another false hope .

  35. The Prangwizard
    September 21, 2015

    The state should not get involved in setting wage rates or minima at all. It may be popular in some quarters and it may make those doing so feel good about themselves but as with all other such interventions there will be no satisfactory long-term outcome. There will inevitably be demands for ‘more’ or ‘why not me and my circumstances’? Any attempt to resist such calls will be ungratefully received, and avoidable divisions are created. And of course it is yet another way that the state grows bigger.

    It should not be Conservative policy or practice.

    Governments should

  36. Rita Webb (Mrs)
    September 21, 2015

    Why the hell not discriminate other EU members do? Why do we have to take more of the people who appear at the bottom of tables of education and economic achievement? Why do we have change our way of life to accommodate theirs?

  37. miami.mode
    September 21, 2015

    Lovely little article in the Guardian online a day or two ago about the LibDems who lost their seats in May. Apparently many of them are still jobless – who’d have thought it? Minimum wage wouldn’t have made much difference to them.

    1. Lifelogic
      September 21, 2015

      Clearly nearly all Libdims are pretty unemployable, just as one would expect.

  38. DaveM
    September 21, 2015

    Any comment on Hinkley, Mr Redwood?

  39. Edward2
    September 21, 2015

    It has another effect which is on differentials.
    If you were a supervisor or team leader with a few years at a company and after the living wage is brought in you found new starters on the same wage as you, I think you will be very quickly asking for a pay increase.
    And so on up the company pay scales.
    Its not just the cost of meeting the law but this differentials effect which makes it costly for employers.
    There is no problem for State monopolies, quangos, local authorities and energy companies etc.
    They just pay up and pass it on to their customers in the form of higher prices.
    Not so easy for those trying to survive in a competitive marketplace.

  40. margaret
    September 21, 2015

    If it was all so simple! higher wages means less hours per capita and a demand by the employer for more output .
    Perceptions of what is productive and not productive come with surprises. Courts are full of people who said we didn’t need this or that person.

  41. libertarian
    September 21, 2015

    The are a number of point about all of this.

    1) The NMW has become a defacto bench mark for some jobs. It has become the accepted rate of pay for a job, when if it wasn’t there pay would go UP to try to attract workers

    2) The SME job creation miracle could only be derailed by idiot politicians, guess what George & Dave strike again since the announcement of living wage we’ve have 2 consecutive months of rising unemployment

    3) A friend owns a chain of hotels across South East , the living wage demand has forced his prices UP. Now his bookings have plummeted as overseas visitors find cheaper alternatives, next up staff layoffs. Nice one George & Dave

    4) We ALL believe that people should earn enough money to cope with the cost of living, but thats the issue, not wages but cost of living. High taxes, high energy and fuel prices, high housing costs and no savings returns.

    5) Wages are a part of the total cost of employment. An SME has to fund, EU working regulation compliance, maternity and paternity leave, holiday entitlement, we have to pay Employers National Insurance and now also auto enrolment costs on top . The added cost to the hourly rate is another 20% on top at least.

    Here’s some ideas how about making domestic rent tax deductible on your primary home , how about sticking to the original promises and lowering VAT back to 17.5% how about merging ALL the employment taxes into one and at least saving the overhead of managing multiple schemes. How about raising the tax threshold to £20k and really make it worthwhile for people to work and spend money in the economy.

  42. ferdinand
    September 21, 2015

    many people do not understand that in employment the employer is the seller and the employer the buyer. Everyone is encouraged to bargain down prices or try for a better deal but when it comes to selling your labour the buyer is castigated for trying get a better deal.

  43. A different Simon
    September 21, 2015

    O/T ,

    What the heck is Osborne doing promising that the treasury will underwrite Chinese investment in Hinckley Point ?

    The barrage of information which has surfaced about the proposed reactor and Chinese attitudes to safety should have been used as an excuse to get out of the deal .

    Why can’t we just wait another 2 years and go with AP1000’s instead ?

    The cost of getting UK banks access to the Indian market was ICT visas for Indian I.T. workers and the subsequent (impact on ed) the UK I.T. industry .

    Is throwing nuclear safety out the window and commissioning (words left out) reactors (which some question ed) really an acceptable price to pay for getting UK banks access to the Chinese market ?

  44. Mike Wilson
    September 21, 2015

    Off topic – but to do with skills, engineering and better paid jobs … why on earth can’t we build our own nuclear power stations? Any idea, Mr. Redwood, why this is being farmed out. We must be the only country on earth that has no faith or ability in our own capabilities. Fancy letting foreigners own our energy supply. Madness!

  45. Jon
    September 21, 2015

    Apparently the new black is robots, robo financial advisers, robo investment advisers, robot cleaners etc etc etc.

    All those big expensive office spaces in London with those fancy trading desks being replaced by algorithms that can choose the best decision in a fraction of a second.

    A robo MP, collecting information from all constituents and an algorithm to deliver the best outcome at the other end.

    Well I just hope I manage to get employment to retirement before this stuff really kicks in, if it does.

    One thing I do know is when I look at the Gerkin in St Mary’s Axe only made possible by algorithms I like it’s beauty. But when I look at the Lloyds building, more old school but futuristic it’s far more interesting and inspiring.

    Growing your own is far more tasty veg than supermaket stuff, we will see who wins. The robo’s or the humans.

  46. Kevin Marshall
    September 22, 2015

    Any adverse impact of a minimum wage in a country with regional disparities is where there is greatest relative deprivation. Why will a business want to locate or expand in places like Bootle or Burnley when in Warrington or Northwich they can experience better transport links, a more diverse workforce and a more business-friendly environment? One big advantage is lower labour costs. A minimum wage can be a serious disincentive to the development of deprived areas.
    It may not apply to all areas. I have family connections in Caithness which has been in steep decline for over a decade now. Low labour costs would make no difference to the remotest of the area, though low crime and a strong sense of community can.

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