There we have it. Miliband’s big idea: the living wage. Only it is not Miliband’s idea. And more to the point it is not a very big idea. In fact, it seems to me extraordinarily unambitious.
We presently have a system in which somebody earning the national minimum wage – which for most is not sufficient to live in any comfort even before tax – and working full time pays income tax at 20% on about a third of their salary, national insurance, VAT on the goods they buy, fuel duty and road tax on the car that gets them to their minimum-wage job, council tax, air passenger duty on their budget holiday, and more.
Yet because the minimum wage in insufficient, and such a vast proportion of it is paid in taxation, the government then gives back to majority of these low-paid workers the same amount, or more, than they paid in tax through working tax credits, child tax credits, council tax benefit and housing benefit.
Who, if they were designing a wage, tax and benefits system from scratch, would come up with such a convoluted, inefficient system? (Well, probably Gordon Brown.)
On its own, the living wage would have a marginal impact in inserting a bit of sense into the system. But it is essentially just a small increase in the minimum wage, which is good but not sufficient.
A better starting point would be to abolish direct taxes on a minimum wage salary, as the Lib Dems want to do (and have already started).
Even then, though, there will be a large number of people whose net income is not enough to live on. Reducing some of the indirect taxes mentioned above would therefore help a little more.
A significant proportion of the funding for these changes can come from the reductions in tax credits and benefits paid to those now keeping more of the money they earn. And different taxes can be levied on wealthier individuals to cancel out the positive effect of reducing indirect taxes.
Still then there will likely be more to do. And this is where a higher minimum wage can be considered. But while the minimum wage so far seems only to have had a relatively small impact on unemployment, a significant increase – without other changes – clearly would make hiring people less attractive.
That is why – and this is crucial – the further savings made in the benefits and tax credits system should be hypothecated to reduce taxes on business, starting with the abolition of employer national insurance contributions. This would, to a large extent, mitigate the effects on employment of a significant increase in the minimum wage.
There is a way to make work pay and leave behind Gordon Brown’s labyrinthine tax and benefits system. Indeed, the Lib Dems have made significant steps to doing so already. But we must be bolder, because we know for sure that neither Labour nor the Tories will be.
* Nick Thornsby is Thursday Editor of Liberal Democrat Voice and blogs here.