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.

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Is there such a thing as responsible betting?

Punters are encouraged to bet responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly.

I try not to watch the commercials between matches, or the studio discussions, or anything really, before or after, except for the match itself. And yet there is one person I never manage to escape properly – Ray Winstone. His cracked face, his mesmerising voice, his endlessly repeated spiel follow me across the room as I escape for the lav, the kitchen, the drinks cupboard.

I’m not sure which betting company he is shouting about, there are just so many of them, offering incredible odds and supposedly free bets. In the past six years, since the laws changed, TV betting adverts have increased by 600 per cent, all offering amazingly simple ways to lose money with just one tap on a smartphone.

The one I hate is the ad for BetVictor. The man who has been fronting it, appearing at windows or on roofs, who I assume is Victor, is just so slimy and horrible.

Betting firms are the ultimate football parasites, second in wealth only to kit manufacturers. They have perfected the capitalist’s art of using OPM (Other People’s Money). They’re not directly involved in football – say, in training or managing – yet they make millions off the back of its popularity. Many of the firms are based offshore in Gibraltar.

Football betting is not new. In the Fifties, my job every week at five o’clock was to sit beside my father’s bed, where he lay paralysed with MS, and write down the football results as they were read out on Sports Report. I had not to breathe, make silly remarks or guess the score. By the inflection in the announcer’s voice you could tell if it was an away win.

Earlier in the week I had filled in his Treble Chance on the Littlewoods pools. The “treble” part was because you had three chances: three points if the game you picked was a score draw, two for a goalless draw and one point for a home or away win. You chose eight games and had to reach 24 points, or as near as possible, then you were in the money.

“Not a damn sausage,” my father would say every week, once I’d marked and handed him back his predictions. He never did win a sausage.

Football pools began in the 1920s, the main ones being Littlewoods and Vernons, both based in Liverpool. They gave employment to thousands of bright young women who checked the results and sang in company choirs in their spare time. Each firm spent millions on advertising. In 1935, Littlewoods flew an aeroplane over London with a banner saying: Littlewoods Above All!

Postwar, they blossomed again, taking in £50m a year. The nation stopped at five on a Saturday to hear the scores, whether they were interested in football or not, hoping to get rich. BBC Sports Report began in 1948 with John Webster reading the results. James Alexander Gordon took over in 1974 – a voice soon familiar throughout the land.

These past few decades, football pools have been left behind, old-fashioned, low-tech, replaced by online betting using smartphones. The betting industry has totally rebooted itself. You can bet while the match is still on, trying to predict who will get the next goal, the next corner, the next throw-in. I made the last one up, but in theory you can bet instantly, on anything, at any time.

The soft sell is interesting. With the old football pools, we knew it was a remote flutter, hoping to make some money. Today the ads imply that betting on football somehow enhances the experience, adds to the enjoyment, involves you in the game itself, hence they show lads all together, drinking and laughing and putting on bets.

At the same time, punters are encouraged to do it responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly. Responsibly and respect are now two of the most meaningless words in the football language. People have been gambling, in some form, since the beginning, watching two raindrops drip down inside the cave, lying around in Roman bathhouses playing games. All they’ve done is to change the technology. You have to respect that.

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war