Wednesday, September 29, 2010

Labour's Living Wage vs our raising of the tax threshold

In amongst fratricidal leadership trauma and bashing the Coalition Government (which I suppose you'd expect of a Party in opposition - we were hardly complimentary about Labour when they were in power), Labour have been trumpeting this wonderful new policy of a Living Wage. They've decided that they weren't paying public sector workers enough when they were in power and now they're in opposition they should be paid a minimum of £7 per hour.

Don't get me wrong, I'm all in favour of the lower paid having more money, but aren't we already doing pretty much everything Labour plans to do? And that's a big Liberal Democrat win, because you wouldn't find the Tories doing that on their own.

It's very dangerous to let me loose with numbers, but roughly this is what I've worked out:

We've already raised the tax threshold by £1000 to start next April. That will give people roughly £20 a week extra.

Raising the minimum wage by £1.07 per hour. That'll give a full time employee around £40 extra a week, but then you have to take about 30% of that off in tax and NI, so they'll have around £28 extra a week.

And wouldn't part time workers, like the dinner lady Ed Miliband was talking about yesterday, be taken out of tax completely under our plans?

George Osborne has stated that the Coalition intends to keep raising the tax threshold as far as possible towards £10,000. Just one more raise would give people cumulatively an extra £40 per week.

The other thing is, as I was reminded by my husband who is pretty close to retirement, that our way helps those on low incomes who don't have a job. And Labour always insisted on having a lower minimum wage for young people so they wouldn't benefit as much. Under our plan, everyone benefits equally.

So both plans would make people better off - but the Liberal Democrats in Government are already responsible for ensuring that people are on the way to being paid a living wage.


Anonymous said...

The difference is that raising the tax threshold (which I support) benefits all people, not just the poorest. It also costs money which, we are told, the Government doesnt have much of at the moment.

The living wage, however, would not actually cost the government money - other than in its own wage costs (as the minimum wage), and would force employers to think about the pay and conditions of its lowest paid workers.

Mike said...

The difference is that one is regressive, one progressive. One is far more expensive that the other, also.

The IFS calculated that raising the income tax threshold to £10,000 would cost £17billion, of which only £1billion- or 6%- would go towards taking people out of tax. The richest benefit far more than the poorest.

As Left Foot Forward says- “Spending £17 billion on increasing the personal allowance is a very poor way to help those on low incomes. It could actually harm the welfare of low-income households by increasing inequality and relative poverty.”

And as the Liberal Democrat "Social Liberal Forum" said before the election-

"The fact that raising the tax threshold helps people on higher incomes more than people on low incomes is not, believe it or not, a startling revelation. We know. The party has never tried selling this policy in isolation; we’d be mad to attempt to because people would rightly ask where we propose trying to find £17bn. The two are meant to balance each other; that’s why we are calling for a tax shift and not either a rise or reduction in taxes overall1."

Of course the Mansion tax and the Green taxes were soon given up.

Braveheart said...

"Labour's Living Wage vs our raising of the tax threshold"

Why not both...?

Mike said...

Oh as well- only the richest 40% of pensioners get anything from raising the income tax threshold to £10,000.

"First, raising tax thresholds doesn’t help the poorest because they don’t have enough to pay income tax. Though the tax cut would cost £17 billion, three million households in the poorest quarter of the population would get not a penny of help. That includes the majority of pensioners. We notice some Lib Dem election leaflets sold this policy as “£100 for pensioners”. But it wouldn’t be. It would be £100 for the richest 40% of pensioners and nothing for the poorest 60% of pensioners."

cynicalHighlander said...

Labour is a sad party in delusion of its own importance, nil.

The only people will be female workers in the public sector trying to get a comparable wage, where have Labour been the last 13 years on holiday.

Anonymous said...

Its another one of those manifesto pledges that we have now managed to get out there into government and ultimately into peoples pockets.

I'm no economist thats for sure, but the more we trumpet these achievments, the more people will see that whilst we may be a junior partner in the coalition, a partner we are none the less.

These are exactly the kind of things that we said we would do if people voted for us and are direct challenges to the accusations of 'soul selling' that some like to aim at us from the other side of the house.

Adam Bell said...

The corollary of LFF's rather bizarre attitude towards raising the tax band is that the Government should only ever spend money on helping out poor people, and that cutting taxes for everyone is somehow immoral. This would perhaps work if you believed that the only function of the state is to look after the very poorest, but if you believe that you'll also be in favour of removing council housing from people who don't need it any more. Consistency, chaps, please.

Joe Otten said...

People paying 40p tax aren't benefiting from the threshold increase as 40p threshold is going down by the same amount to cancel out that gain for them. So it is flatly untrue to say that raising the threshold benefits the richest.

There is a gain for everybody on the 20p rate, not just those at the lower end of that range, and I see nothing wrong with that.

And the minimum wage is not free either, remember. If it goes up too much there will be significant numbers of jobs lost as a result. How much is too much? That's for the low pay commission to do the sums on.


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