Time for a rethink on taxation?
As the British Retail Consortium pleads with the Government not to raise the minimum wage, retail recruiter Peter Burgess argues for a shift in taxation policy to aid the 'forgotten poor'.
Earlier this month the British Retail Consortium issued a plea to the Government not to raise the National Minimum Wage (NMW). They argue that raising the NMW now will put further pressure on employers already facing the most difficult economic situation for 60 years. This in turn, they say, will damage businesses and therefore cost the industry jobs.
They have a point. Although only 7% of retail employees are in fact on the minimum wage, approximately 200,000 people, this has a knock-on effect on all retail salaries. Retailers' coffers are under particular strain during the downturn and they can only stretch their wage bill so far. Retail is the largest employer in the country and, at a time when government and business alike wish to preserve jobs, this is not the moment to take risks. Arbitrarily increasing UK plc's wage bill is a risk. The argument follows, therefore, that it is better to have low paid jobs than no jobs at all.
From a business perspective I do not think the BRC's case is refutable. While potentially unpopular, this logic applies even more to the hospitality industry, the second largest employer in the UK, which is thought to have between 15 and 20 percent on the minimum wage.
At the risk of upsetting some very important people I would also have to argue that freezing the minimum wage is not the answer either. There is one group of people in our society who could accurately be regarded as the forgotten poor. These are the single working people on a low or minimum wage. If you are on social security you are given help. If you are a family, in the traditional sense, you get help. If you are a single person working at the bottom end of the wage spectrum, you get nothing.
You may have noticed that politicians, Gordon Brown in particular, never stop talking about Britain's hard working families. What about the hard working single people? Do they not deserve help? If we look at the tax system it certainly appears that their needs are of little concern to those in power. Since 1979 the tax bite has moved progressively down the pay scales - dramatically so in 2008 when Gordon Brown removed the 10p lower tax rate.
It occurs to me that if the Government really was serious about all of the low paid workers then it would do something about the 63 pence per hour it takes from the people on the minimum wage. To many readers this may not seem much, but it is if you are on the minimum wage.
With the political party conference season just over and the certainty that there will be an election in the next nine months, it is hard not to bring party politics into this discussion, so I won't try. Labour traditionally claims credit for looking after the poor. Personally I am sick of hearing the Prime Minister talk about Britain's hard working families. It's as if the country is only populated by families. It is not. Last year's removal of the lower 10p rate of tax showed that they have abandoned any serious attempt at helping all of the poor.
The Lib Dems have spoken passionately about a fair taxation system. But what they really mean is to tax the rich while also concocting some ideas about property taxes that make the Poll Tax look intelligent.
David Cameron got a standing ovation at the Tory party conference earlier this month for claiming to be the party for the poor. True there were some innovative ideas. But they do not go anywhere near far enough. The most pressing problems facing the country today are the burgeoning public debt and the continuing rise in unemployment. There are answers.
In a fair society you just wouldn't have a system that applies tax to the very poorest in our society - it's just wrong. If you're on the minimum wage, working full-time and not in what Gordon Brown describes as a family, you will be paying 63p out of every £5.80 per hour that you earn in tax and National Insurance. Let's first get rid of the myth about national insurance - it's a tax by another name. I wonder sometimes how the shop assistants and kitchen staff in our hotels, in London in particular, can even survive on that salary.
The starting point for tax should be at the minimum wage. But I would go further. The 13% charge for employers' National Insurance should also not be charged at this level.
The effect of such a move would cost around £69bn*, which of course is unaffordable. However, other tax bands should be adjusted to neutralise the effect of this on the upper nine-tenths of the workforce bringing the bill down to £6.9bn. Of the lowest tenth of the workforce at least half of these will be obtaining some sort of benefit which would be reduced to offset the tax gain. This brings the cost down to £3.45bn. I would argue that this is a cost worth paying for getting more working people out of poverty.
In any event the actual cost of such a move would be unlikely to reach anything like this level. By the removal of the employment tax (employers' National Insurance) and by widening the incentive to get people off dole payments, at least 200,000 jobs could be created. That removes £6bn from the benefits bills. A net gain to the treasury of more than £3.5bn, 200,000 people (at least) in work and better service in our industries with more staff.
There are over 200,000 retail or hospitality units across the UK ranging from the very small to the superstores and large hotels. Few managers reading this magazine will say that they always have enough staff to get the job done. If each one took on just one employee this would achieve the goal of getting 200,000 into work.
One thing is for sure. We cannot go on taxing the poorest people in our society and we must have a fairer system of taxation. This will do far more than tinkering with the minimum wage and will do much for the real job creators in our economy, the retail and hospitality sectors. My message to politicians is that of course families, the elderly and the sick are priorities, but single people must not be forgotten either.