The living wage and tax

Does the living wage provide an argument for ending tax on the lowest paid?

Forbes blogger Tim Worstall writes, on his personal site:

Note, and nota bene, that the Living Wage is a pre-tax number. This is before the income tax and NI that is charged to these wages. If you take those off (and I’ve not done it for this year’s number but I have for previous years) you find that the living wage of £7.20 (or whatever) an hour is within pennies of the minimum wage of £6.19 (or whatever) an hour.

We don't actually know what the living wage will be this year (it's announced on 5 November), but I thought I'd re-run Worstall's calculations with last year's numbers anyway.

The living wage is calculated based on a full-time worker working for 38.5 hours a week. It's also calculated first for London, then downrated for the rest of the country according to cost of living differences, so we'll do the same. The London living wage is currently £8.30 an hour, and the living wage for the rest of the UK is £7.20 an hour. The national minimum wage when these rates were set was £5.93, but is now £6.19.

A full-time worker in London on the living wage earns £319.55 a week. A full-time worker out of London on the living wage earns £277.20 a week. A full-time worker on the 2012 minimum wage earns £238.32 a week, and a full-time worker on the 2010 minimum wage earned £228.31 a week.

To assess Tim's point, we subtract the basic income tax and NI charged on those wages. Someone on the London living wage pays £35.11 tax and £20.83 NI, leaving them with £263.61 a week. Someone on the non-London living wage pays £26.64 tax and £15.74 NI, leaving them with £234.82 a week.

So if you are out of London and paid the living wage, your income if you paid full NI and tax would be slightly lower than than the pre-tax value of the minimum wage – and even after the amount is uprated next month, it would only be a few pounds higher.

Does this then mean Worstall is right when he says:

It is not that wages are too low. The minimum wage is almost exactly what they say that poverty level is. It is that taxes on the poor are too high. Which is an easy problem to solve, something well within the government’s power. Stop taxing the poor so much.

Well, there's a few more stats to look at first. For one thing, the minimum wage is itself a pre-tax figure. Post income tax and NI, the minimum wage is £208.37, a solid £26 a week lower than the living wage. It's perfectly reasonable to think that, if the living wage could be lower without taxes, the minimum wage could be too.

Secondly, if there's one thing the whole comparison really highlights, it's that while the minimum wage may be acceptable in most of the country, in London it's grossly low. £55 a week, post-tax, is the difference between what it takes to live out of poverty in London and what you actually earn working 38.5 hours a week on the minimum wage.

But thirdly, and most important, the Living wage isn't actually calculated pre-tax. The Greater London Authority, the body responsible for calculating the London living wage, writes (pdf):

If means-tested benefits were not taken into account (that is, tax credits, housing benefits and council tax benefits) the Living Wage would be approximately £10.40 per hour.

Even with all means tested benefits taken into account, the total tax rate for many on the London living wage is likely to be positive; and it's certainly true that there are likely to be inefficiencies involved in taking money in the form of NI while at the same time giving it back as housing benefit. But simply arguing that ending tax on the minimum wage would make it into a living wage seems incorrect. Few, if any, on the living wage pay the maximum amount of tax as calculated above, for the very good reason that that would be a terrible idea.

This doesn't mean that there isn't still a valuable argument to be made about taking the lowest paid out of the taxation system; and it doesn't mean that it isn't deeply strange that people on the minimum wage have to pay money to the government and then ask for it back in kind; but the living wage doesn't really help us make those arguments.

Campaigners for a living wage in 1972. Photograph: Getty Images.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Jeremy Corbyn sat down on train he claimed was full, Virgin says

The train company has pushed back against a viral video starring the Labour leader, in which he sat on the floor.

Seats were available on the train where Jeremy Corbyn was filmed sitting on the floor, Virgin Trains has said.

On 16 August, a freelance film-maker who has been following the Labour leader released a video which showed Corbyn talking about the problems of overcrowded trains.

“This is a problem that many passengers face every day, commuters and long-distance travellers. Today this train is completely ram-packed,” he said. Is it fair that I should upgrade my ticket whilst others who might not be able to afford such a luxury should have to sit on the floor? It’s their money I would be spending after all.”

Commentators quickly pointed out that he would not have been able to claim for a first-class upgrade, as expenses rules only permit standard-class travel. Also, campaign expenses cannot be claimed back from the taxpayer. 

Today, Virgin Trains released footage of the Labour leader walking past empty unreserved seats to film his video, which took half an hour, before walking back to take another unreserved seat.

"CCTV footage taken from the train on August 11 shows Mr Corbyn and his team walked past empty, unreserved seats in coach H before walking through the rest of the train to the far end, where his team sat on the floor and started filming.

"The same footage then shows Mr Corbyn returning to coach H and taking a seat there, with the help of the onboard crew, around 45 minutes into the journey and over two hours before the train reached Newcastle.

"Mr Corbyn’s team carried out their filming around 30 minutes into the journey. There were also additional empty seats on the train (the 11am departure from King’s Cross) which appear from CCTV to have been reserved but not taken, so they were also available for other passengers to sit on."

A Virgin spokesperson commented: “We have to take issue with the idea that Mr Corbyn wasn’t able to be seated on the service, as this clearly wasn’t the case.

A spokesman for the Corbyn campaign told BuzzFeed News that the footage was a “lie”, and that Corbyn had given up his seat for a woman to take his place, and that “other people” had also sat in the aisles.

Owen Smith, Corbyn's leadership rival, tried a joke:

But a passenger on the train supported Corbyn's version of events.

Both Virgin Trains and the Corbyn campaign have been contacted for further comment.

UPDATE 17:07

A spokesperson for the Jeremy for Labour campaign commented:

“When Jeremy boarded the train he was unable to find unreserved seats, so he sat with other passengers in the corridor who were also unable to find a seat. 

"Later in the journey, seats became available after a family were upgraded to first class, and Jeremy and the team he was travelling with were offered the seats by a very helpful member of staff.

"Passengers across Britain will have been in similar situations on overcrowded, expensive trains. That is why our policy to bring the trains back into public ownership, as part of a plan to rebuild and transform Britain, is so popular with passengers and rail workers.”

A few testimonies from passengers who had their photos taken with Corbyn on the floor can be found here