Monday, 5 November 2012

"We're Broke!", Cries Miliband

When, soon after the last election, Liam Byrne left a note to his successor declaring that "there is no money", there was much astonishment from public and commentators alike. It seemed unimaginable that a politician could be so honest, even in jest, about the lack of funds at his disposal. Almost an admission of failure.

No-one should have been too surprised, though, seeing as politicians openly tell us all how broke and financially incompetent they are on a regular basis. In fact, Ed Miliband has done exactly that today.
Ed Miliband has unveiled plans to deliver a "living wage" of at least £7.45 per hour for millions of people, if Labour wins the next election. 
Whitehall contracts would only go to firms paying the living wage, while those who paid less could be "named and shamed", said the Labour leader.
For a dedicated believer in the power of the state, it should be simple for Ed to just come out with a scheme whereby the government guarantees that level of income through, say, tax credits or threshold increases, shouldn't it?

Well, no. Because, you see, he knows all too well that the state wouldn't even dare contemplate any such thing. To coin a phrase "there is no money" with which Ed can be able to do that. So his bribe to the electorate - which, in the grubby tradition of politics, this is - involves bragging about how much of other people's money he will be spending instead, if elected.

The truth is that, in the past twenty years or more, government has created imaginary new taxes along with other more innovative ways of taking cash off of the public, all to continue spending on their pet schemes while still being in a position to offer bribes come election time. These bribes, in the past, were in the form of tax cuts (Conservative, generally) or benefit increases (Labour, generally). However, despite us now paying - amongst others - things like insurance premium tax and airport tax which didn't exist 30 years ago, along with eye-watering sin taxes, incrementally increased VAT, and other schemes such as locally-administered parking regulations to help councils with their finances, the state finds it almost impossible to fleece us directly for any more.

Well, they could, but politicians know that there is a certain level of spending as a percentage of GDP - and taxation to facilitate it - which renders political parties liable for electoral defeat, and that just wouldn't do for your average, self-serving politico.

We've been on or around that level for quite a few years now, which is why we've seen the bribes change from taxation-funded giveaways to the generous spending of funds generated by businesses. Think, for example, extensions to maternity pay entitlement, the creation of paternity pay as a concept, and the national minimum wage, which cost the state nothing (or very little) as the cost is borne by others.

Politicians can preen and bask in how caring and generous they are being to the public, but each time they come out with these bribes they may as well be declaring to the world exactly what Liam Byrne did. "We're broke, there is no money left, we're not going to reduce the size of government, so we're bribing you in another way".

With regard the living wage, much of the emphasis today has been on how it is just a voluntary thing; how "responsible" employers will be happy to pay it; how it is the right thing to do; and how it will 'boost morale'. However, we've seen those arguments for a long time now - the living wage is not a new idea, the foundation to promote it was set up over a decade ago. What has changed is Miliband's new, more sinister, tack of 'naming and shaming' companies which don't (or, more likely, can't) pay it, and demanding it be a requirement for any firm bidding on public sector contracts.

Y'see, despite the living wage apparently being a wonderful "idea whose time has come", according to David Cameron, even someone as big a fan as Miliband knows it will be disastrous for business and the economy right now, or he'd be promising to make it mandatory. So today we've just seen the first little baby steps of what will be a future requisition of private assets for political electioneering when things pick up (and the roof can again be left unfixed while the sun is shining).

A perfect example of how this will work can be seen in a history of statutory sick pay (SSP) - it is also an illustration of both the dwindling disposable income of the state in the past 30 years and the bribe mentality not being shy of encumbering private and public sector alike and, by extension, consumers and taxpayers who would suffer the passing on of costs.

Introduced in 1983, SSP guaranteed a certain level of sick pay for employees but it could be reclaimed 100% by businesses, therefore it was funded by the state out of tax receipts. In 1991, government found that they couldn't afford this so reduced the amount claimable to 80%. This 80% was later removed almost entirely in 1994 and, hey presto, benevolent government was treating employees without cost to any of their ever-expanding spending plans. They couldn't afford it any more, they were broke.

See? Liam Byrne wasn't the first, politicians have been telling us there's no money left for a long time, you just have to listen carefully. How honest of Ed to emphasise it yet again, eh?


Curmudgeon said...

Well, if the government wants to pay more for external services, go ahead. And surely the whole thing is inherently inflationary.

P JH said...

As has been pointed out else-internet[1]...

37.5hrs * 48 weeks * £7.45 'living wage' produces a net salary of £11,650.84[2] this tax year.

That works out to (£11,650.84/(37.5*48)) = £6.472*

The current minimum wage is £6.19[3]

"If you want to improve the incomes of the working poor the obvious answer is to stop taxing them so damn much.[1]" i.e. set the lower bound of Income tax and NI to exactly the wage provided by a full year's employment at the minimum wage.

[1] (among others)

Dick_Puddlecote said...

Inflationary, indeed. It's a potential return to the price/wages spiral of the 1970s. Is it really that long ago that people have forgotten?

As for government paying extra for external services, we all know who pays eventually for that, don't we?

Dick_Puddlecote said...

I often feel it must be a constant source of embarrassment to politicians who believe in the minimum wage that they still tax what they claim is a basic income. I think it's the Joseph Rowntree Foundation or some such who said it was the difference between subsistence and poverty. In which case, why is the state taxing the destitute?

They can moralise to us once the tax threshold rises above around £12k per annum, until then ...

(of course, when the living wage is brought in, they will have to raise it to £14.5k to avoid being hypocritical)

Tom said...

It also causes some employers for certain lower paid job skills to not hire legally and keeping tax records of payments but to hire illegally and paying cash wages under the table. It's sort of like how higher sin-taxes lead to more black-marketeering, so mandated higher minimum wages, higher benefits, etc., all at no cost to government but at great cost to struggling businesses results in a black-market of labour pool who are often in the country illegally on top of working cash under the table and nobody, employer or employee, paying taxes on it, avoiding the tax the same way black-market goods avoid the high sin taxes.

JonathanBagley said...

Each year, following the budget, the Times publishes take home pay for households in various financial situations. For a familyy on a low income, with two children, family tax credits and other benefits are responsible for a marginal rate of income tax of over 70%. Therefore an increase in the minimum wage of £1.26 an hour will give those involved only 38p an hour extra. It will, though, benefit the single childless person on the minimum wage, which in my view is a good thing. Family tax credits are a cunning way of hiding what is effectively a large tax on the childless poor (they are a negative income tax). In 1977, the sort of low skilled warehouse stacking jobs I'd do as a student paid a decent wage. These summer job wages were about the same as a good graduate starting salary (when they really were graduate jobs). Today that would be at least £20K. They probably now pay £12K and, for those with children, this is brought up to £20 with tax credits and benefits. The single childless receive no such benefits and their income has fallen sharply in relative terms.

Dioclese said...

I thought we already had this - it's called the statutory minimum wage isn't it?