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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We're running out of time to stop a hard Brexit - and the consequences are terrifying

Liam Fox has nothing to say and Labour has thrown the towel in. 

Another day goes past, and still we’re no clearer to finding out what Brexit really means. Today secretary of state for international trade, Liam Fox, was expected to use a speech to the World Trade Organisation to announce that the UK is on course to leave the EU’s single market, as reported earlier this week. But in a humiliating climb-down, he ended up saying very little at all except for vague platitudes about the UK being in favour of free trade.

At a moment when the business community is desperate for details about our future trading arrangements, the International Trade Secretary is saying one thing to the papers and another to our economic partners abroad. Not content with insulting British businesses by calling them fat and lazy, it seems Fox now wants to confuse them as well.

The Tory Government’s failure to spell out what Brexit really means is deeply damaging for our economy, jobs and global reputation. British industry is crying out for direction and for certainty about what lies ahead. Manufacturers and small businesses who rely on trade with Europe want to know whether Britain’s membership of the single market will be preserved. EU citizens living in Britain and all the UK nationals living in Europe want to know whether their right to free movement will be secured. But instead we have endless dithering from Theresa May and bitter divisions between the leading Brexiteers.

Meanwhile the Labour party appears to have thrown in the towel on Europe. This week, Labour chose not to even debate Brexit at their conference, while John McDonnell appeared to confirm he will not fight for Britain’s membership of the single market. And the re-election of Jeremy Corbyn, who hardly lifted a finger to keep us in Europe during the referendum, confirms the party is not set to change course any time soon.

That is not good enough. It’s clear a hard Brexit would hit the most deprived parts of Britain the hardest, decimating manufacturing in sectors like the car industry on which so many skilled jobs rely. The approach of the diehard eurosceptics would mean years of damaging uncertainty and barriers to trade with our biggest trading partners. While the likes of Liam Fox and boris Johnson would be busy travelling the world cobbling together trade deals from scratch, it would be communities back home who pay the price.

We are running out of time to stop a hard Brexit. Britain needs a strong, united opposition to this Tory Brexit Government, one that will fight for our membership of the single market and the jobs that depend on it. If Labour doesn’t fill this gap, the Liberal Democrats will.

Tim Farron is leader of the Liberal Democrats.