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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As long as Jeremy Corbyn's Labour opponents are divided, he will rule

The leader's foes have yet to agree on when and how a challenge should take place.

Labour MPs began plotting to remove Jeremy Corbyn as leader before he even held the position. They have not stopped since. From the outset, most regarded him as electorally and morally defective. Nothing has caused them to relinquish this view.

A week before the first major elections of this parliament, Labour found itself conducting a debate normally confined to far-right internet forums: was Hitler a Zionist? For some MPs, the distress lay in how unsurprised they were by all this. Since Corbyn’s election last September, the party has become a mainstream venue for hitherto fringe discussions.

Many MPs believe that Labour will be incapable of rebuilding its standing among the Jewish community as long as Corbyn remains leader. In the 1930s, Jewish support for the party was as high as 80 per cent. “They handed you your . . . membership just after your circumcision,” quipped the father in the 1976 television play Bar Mitzvah Boy. By the time of the last general election, a poll found that support had fallen to a mere 22 per cent. It now stands at just 8.5 per cent.

Corbyn’s critics cite his typical rejection of anti-Semitism and "all forms of racism" (as if unable to condemn the former in isolation), his defence of a tweet sent by his brother, Piers (“Zionists can’t cope with anyone supporting rights for Palestine”), and his description of Hamas and Hezbollah as “friends”. The Lab­our leader dismissed the latter remark as a diplomatic nicety but such courtesy was not displayed when he addressed Labour Friends of Israel and failed to mention the country’s name. When challenged on his record of combating anti-Semitism, Corbyn frequently invokes his parents’ presence at the Battle of Cable Street, a reference that does not provide the reassurance intended. The Jewish community does not doubt that Labour has stood with it in the past. It questions whether it is prepared to stand with it in the present.

MPs say that Labour’s inept response to anti-Semitism has strengthened the moral case for challenging Corbyn. One shadow cabinet minister spoke of how the fear of “enormous reputational damage” had pushed him to the brink of resignation. As the New Statesman went to press, Corbyn’s first electoral test was looming. Every forecast showed the party on course to become the first opposition to lose council seats in a non-general-election year since 1985. Yet Corbyn appeared to insist on 3 May that this would not happen, gifting his opponents a benchmark by which to judge him.

Sadiq Khan was projected to become the party’s first successful London mayoral candidate since 2004. But having distanced himself from Corbyn throughout the race, he intends to deny him any credit if he wins. Regardless of the results on 5 May, there will be no challenge to the Labour leader before the EU referendum on 23 June. Many of the party’s most Corbyn-phobic MPs are also among its most Europhile. No cause, they stress, should distract from the defence of the UK’s 43-year EU membership.

Whether Corbyn should be challenged in the four weeks between the referendum and the summer recess is a matter of dispute among even his most committed opponents. Some contend that MPs have nothing to lose from trying and should be prepared to “grind him down” through multiple attempts, if necessary. Others fear that he would be empowered by winning a larger mandate than he did last September and argue that he must be given “longer to fail”. Still more hope that Corbyn will instigate a midterm handover to the shadow chancellor, John McDonnell, his closest ally, whom they regard as a beatable opponent.

Those who are familiar with members’ thinking describe many as “anxious” and in need of “reassurance” but determined that Corbyn receives adequate time to “set out his stall”. One shadow cabinet minister spoke of being “caught between Scylla and Charybdis” – that is, “a Labour Party membership which is ardently Corbynista and a British electorate which is ardently anti-Corbynista”. In their most pessimistic moments, some MPs gloomily wonder which group will deselect them first. The possibility that a new Conservative leader could trigger an early general election is cited by some as cause for haste and by others as the only means by which Corbynism can be definitively discredited.

The enduring debate over whether the Labour leader would automatically make the ballot if challenged (the party’s rules are ambiguous) is dismissed by most as irrelevant. Shadow cabinet members believe that Corbyn would achieve the requisite nominations. Momentum, the Labour leader’s praetorian guard, has privately instructed its members to be prepared to lobby MPs for this purpose.

There is no agreement on who should face Corbyn if his removal is attempted. The veteran MP Margaret Hodge has been touted as a “stalking horse” to lead the charge before making way for a figure such as the former paratrooper Dan Jarvis or the shadow business secretary, Angela Eagle. But in the view of a large number of shadow cabinet members, no challenge will materialise. They cite the high bar for putative leaders – the endorsement of 20 per cent of Labour MPs and MEPs – and the likelihood of failure. Many have long regarded mass front-bench resignations and trade union support as ­essential preconditions for a successful challenge, conditions they believe will not be met less than a year after Corbyn’s victory.

When Tony Blair resigned as Labour leader in 2007, he had already agreed not to fight the next general election and faced a pre-eminent rival in Gordon Brown. Neither situation exists today. The last Labour leader to be constitutionally deposed was J R Clynes in 1922 – when MPs, not members, were sovereign. Politics past and present militate against Corbyn’s opponents. There is but one man who can remove the leader: himself.

George Eaton is political editor of the New Statesman.

This article first appeared in the 06 April 2016 issue of the New Statesman, The longest hatred