To promote the living wage, we need to reform the tax system

We must end the absurdity of companies being financially penalised for becoming living wage employers.

The living wage is one of the few policies that garners consensus across the political spectrum. Which politician would be crazy enough to speak against the idea of companies paying their low-paid employees enough to live on? Cue Ed Miliband and Boris Johnson giving speeches today to mark the start of Living Wage Week – with David Cameron not letting the fact that he’s in the Middle East prevent him from pitching into the debate.

Yet when it comes to what supporting a living wage actually means, the differences begin to show. The to-ing and fro-ing between the Labour Party and No 10 today highlight the slippery nature of an idea that is – since no politicians are advocating a statutory living wage – in essence about businesses doing the right thing.

Cameron and Johnson – if their contributions today are anything to go by – stand for business voluntarism in its purest sense. Politicians should stand alongside campaigning organisations like London Citizens in imploring businesses to pay a living wage, but there the buck stops. This ignores the fact that early living wage adopters have tended to be City corporations with a very low proportion of low-paid staff – for whom the costs of becoming a living wage employer are relatively low – and values-driven public sector organisations (of which Boris Johnson’s Greater London Authority is not yet one). The idea that a moral campaign led by civil society and government can by itself shift working conditions for millions in the low-paid, low-skill service sector remains a distant prospect.

Ed Miliband recognised this today by floating the idea that the tax system should reward those companies that become living wage employers. This is an idea that merits serious consideration. The idea that we would financially penalise companies for doing the right thing – for using green energy, for investing in R&D, or for supporting local communities, seems ridiculously self-defeating.

Yet when it comes to the living wage, that is exactly what we do. The IFS estimated back in 2010 that the annual cost to the taxpayer of employers paying below the living wage – in terms of tax credits, benefits and foregone tax – is approximately £6bn. Yet we financially penalise companies taking the decision to become living wage employers. An employer would face an extra bill of £570 a year in employer national insurance contributions (NICs) as a result of moving a full-time employee from the minimum to the living wage. This is despite the fact that the cost to the Treasury of employers paying below living wage is around £1,000 per employee. The tax system effectively charges employers to do something that not only is the right thing to do, but which saves the Treasury a substantial amount of money.

A good way to address this anomaly would be to take the disincentive to pay the living wage out of the system – by introducing a new, flat-rate employer national insurance contribution for employees earning below living wage. This would be set at the same level for a full-time employee actually on the living wage, paid pro-rata for part-time employees. The Treasury could recycle the extra revenue this generates through targeted NICs holidays for small businesses taking on new employees.

Of course, the tax bill is only one of a number of factors companies take into account when making decisions about how much to pay their employees. But if the energy invested by business lobby groups into making the case for lower national insurance is anything to go by, it is something that weighs heavily on the minds of employers, particularly in these straitened times.

Politicians are wary of legislating for the living wage, and they are right to be so: the effects of a big increase in the statutory minimum wage for unemployment are untested. But the Tory approach of just asking nicely won’t bring about the change we need. The Labour party is right that we need government to be much more creative in terms of how it encourages employers to pay the living wage. A reform of employer national insurance contributions for low-paid employees would be one pragmatic way of doing so.

Sonia Sodha is a former senior policy adviser to Ed Miliband. She writes in a personal capacity. She tweets @soniasodha.

Labour Party leader Ed Miliband addresses workers at Islington Town Hall. Photograph: Getty Images.

Sonia Sodha is head of policy and strategy at the Social Research Unit and a former senior policy adviser to Ed Miliband. She tweets @soniasodha.

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Is the French Left having its Jeremy Corbyn moment?

Benoit Hamon won the first round of the Socialist party's presidential primaries. 

Has the French Left taken a Corbynite turn? That's certainly the verdict of many after the first round of the French Socialist Party's primary.

In first place is Benoit Hamon, who quit Francois Hollande's government over its right turn in 2014, and counts the adoption of a universal basic income, the legalisation of cannabis and the right to die among his policy proposals, with 36 per cent of the vote.

In second place and facing an uphill battle to secure the nomination is Manuel Valls, the minister who more than any other symbolized the rightward lurch of Hollande's presidency, with 31 per cent. That of the five eliminated candidates - under the French system, if no candidate secures more than half of the vote, the top two go through to a run-off round - only one could even arguably be said to be closer to Valls than Hamon shows the struggle he will have to close the gap next weekend. And for a variety of reasons, even supporters of his close ally Sylvia Pinel may struggle to put a tick in his box. 

Still, Valls clearly believes that electability is his best card, and he's compared Hamon to Corbyn, who "chose to remain in opposition". Also making the Hamon-Corbyn comparison is most of the British press and several high-profile activists in the French Republican Party.

Is it merited? The differences are probably more important than the similarities: not least that Hamon served as a minister until 2014, and came up through the backrooms. In terms of the centre of gravity and the traditions of his party, he is much closer in analogue to Yvette Cooper and Andy Burnham than he is to Jeremy Corbyn, though Corbynistas and Hamonites bear a closer resemblance to one another than their leaders to.

What will give heart to the leader's office is that Hamon surged in the polls after each debate, when his ideas were given a bigger platform. But what will alarm everyone in Labour is the French Socialists' poll ratings - they are expected to get just 6 per cent in the elections. (And before you scoff at the polls, it's worth noting that they have, so far, performed admirably in the French electoral cycle, picking up on the lightning rise of both Hamon and Francois Fillon.)

That attests to something it's easy to forget in Westminster, where we tend to obsess over the United States and ignore politics on the Continent, despite the greater commonalities: throughout Europe, social democratic parties are in a fight for their lives, no matter if they turn to the left or the right.

The Democrats, in contrast, won the presidential election by close to three million votes and lost due to the electoral college. They have good prospects in the midterm elections and their greatest threat is gerrymandering and electoral malfeasance. But absent foul play, you'd have to be very, very brave to bet on them going extinct.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.