Monday, 23 August 2010

Living wages

Miliband's IFS document on the living wage makes interesting reading. Not only does it incentivise work over welfare, it directly helps the lowest paid, and does so in a way that attaches social responsibility to business practices. The key detail is:

An increase in wages for everyone in the private sector to the level of the
"living wage" (£7.85 in London and £7.60 in the rest of the UK) would lead to an increase in gross earnings of between £11.4 billion and £12.0 billion, of which about £4.5 to £4.9billion would accrue to the Government through higher income tax and employee national insurance payments and lower spending on benefits and tax credits. Employers would also pay about £1.4 to £1.5 billion more in Employers’ National Insurance. In total, the Treasury would gain between £5.9 billion to £6.3 billion.
Dizzy had an interesting take on it yesterday morning re welfare reform. Note the calculation involves 'everyone in the private sector' including SME's paying a lot less in corporation tax (21%) than larger enterprises (28%), with little consequent scope for tax reductions. But this is just the type of initiative the treasury needs to be looking at.