Opinion: low-paying companies should contribute to the welfare pot

In these straitened times it is very tempting to look at trying to reduce the benefits bill. A lot of attention is focussed on benefits paid to people who – for whatever reason – are out of work. However, I think we should also look at the benefits paid to people in work and whether it is right that they should be claiming benefits at all.

Fear not, this is not a proposal likely to be supported by the Daily Telegraph. It is more about attacking the principle of low pay. The coalition government – thanks to the Liberal Democrat element of it – has already made progress by increasing the level at which people start to pay income tax, meaning hundreds of thousands of people no longer pay any income tax. However, there is more we could do.

In his opinion piece, John Roffey floated the idea of reducing or even abolishing the minimum wage. But that just compounds the problem we should be tackling.

To take an example, Tesco made profits of almost £3.5 billion in their last company year. Many of their staff such as the people who stack the shelves are paid the minimum wage or a little more. They then claim benefits to bring their income up to a reasonable level.

This all means that the taxpayer is subsidising the likes of Tesco. How is that acceptable? It’s defensible for a small company just starting up but not for a large, highly profitable company.

HMRC will have the data available to calculate how much income support is paid to employees of companies like this. Surely it would be reasonable for the government to legislate so that they can then send such companies a bill for, say, 90% of the cost.

Companies will then face a choice. They can either directly increase their employees’ wages. Or they can continue to pay poverty wages and face an extra bill from HMRC later. Either way these companies will be the ones who pay what it takes for their employees to enjoy a decent standard of living.

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17 Comments

  • Tony Butcher 4th Oct '10 - 3:06pm

    I was shocked to hear that the benefit cap would be set at the ‘median’ wage of £500.00 per week after tax – that is certainly a lot more than I and many others earn per week – which begs the question are the lower paid better off on benefits?

    This also raises wider issues in society – the average weekly wage for a care worker (based on 40 week) is just £262.40. There is already an issue in recruitment and retention in the care sector but setting such a high cap (in relative terms) sends out a message which say “YOU SHOULD NOT BE EXPECTED TO WORK FOR LESS THAN £500.00 A WEEK”

    What sort of impact will this message have on vital service for the vulnerable – many of which pay frontline workers less than this ‘median’ wage – in the current economic gloom where Local Authority budgets etc are being slashed and there is increasing pressure on services to the most needy, saying to those who provide those services that their wage is below the acceptable minimum is disheartening and simply promotes a culture of benefits.

  • Companies have been subsidised by taxpayers for far too long and it is about time they started paying up. The private rail companies are subsidised by the taxpayer. Not to mention the banks who got bailed out. Businesses get trained employees and yet contribute nothing towards their training and education. Taxpayer subsidised research is used by companies who do not invest in R & D. But is this a priority for the Coalition? Of course not, it is so much easier to target the weak and vulnerable.

  • @Simon Gamble
    There was an OP by Chris White called “hitting the campaign trail? Check your facts first.” Did you comply with his advice (even though he seems to have ignored it himself somewhat)?

    I ask as some of your statements seem a bit – how can I put this – dodgy, for instance:

    “Many of their staff such as the people who stack the shelves are paid the minimum wage or a little more”
    Now I’ve done a one minute google search on “Tesco Wages” and I’m getting stories from these sort of staff saying that they are paid quite a bit more than minimum. Plus they seem to get various share deals – someof which can reduce the amout of PAYE/NI that they pay.

    You then say:
    “They then claim benefits to bring their income up to a reasonable level”
    Which implies that you know for a fact that all of their staff do this, but this is contradicted by the statement:
    “HMRC will have the data available to calculate how much income support is paid to employees of companies like this.”
    Which implies that the figures aren’t actually known at the moment.

  • Colin Green 4th Oct '10 - 3:50pm

    The minimum wage should be set at a level reflecting the minimum acceptable standard of living of a full time employed person and their family, not the profit of the employer. You’re suggestion implies that an employee of a barely profitable company should be paid less than someone doing the same job at a more profitable firm. That said, I accept your point that state benefits for employed people equate to a subsidy to employers who don’t pay a living wage to their staff.

    In an ideal world, I guess that the minimum wage should be set at an acceptable level so that no benefits are paid to the full time employed. Unemployment benefits would be less than the minimum wage and would be tapered against income for part time workers. I’m not sure how we would get from here to there, but I don’t think taxing profitable low payers is the solution.

  • Sir Norfolk Passmore 4th Oct '10 - 3:51pm

    “This all means that the taxpayer is subsidising the likes of Tesco”

    Sorry, Simon, but it means nothing of the sort. It would be a subsidy only if, in the absence of the additional benefits paid to minimum wage employees, Tesco would be likely to have to pay them more. That might be the case but is fairly unlikely – indeed reducing benefits would probably increase people’s willingness to work ever longer hours for organisations like Tesco for the minimum wage available.

    Some organisations employ a lot of low wage people simply because the work is of a sort that requires minimal qualifications. I have no doubt that relatively few people at Deloitte (perhaps a few cleaners) are on minimum wage compared with the proportion at Tesco. That isn’t because Deloitte are immensely socially responsible compared with Tesco – it’s because the type of work they are doing demand a high level of qualifications and the sort of people they employ have other options.

    What your proposal would do is penalise businesses which happen to operate in a field where the skill requirement from employees is very low, and discourage the employment of precisely the sort of people you’re looking to assist.

  • @Tony Butcher

    I have a feeling that the cap was put on to prevent the stories that have happened over the years about professional child producers. By that I mean the sort of people have x kids, decide that they can’t survive on their wage so go on benefit – and then continue to produce more children – meaning that they get a pay rise (in benefit terms).

    Regarding your comments on the care sector – as both my wife and sister are care workers I can see where you are coming from. Unfortunately, due to the type of people they are, I think a lot of the problems arise because they’re not willing/able to rock the boat – this means that bosses can behave in a fairly obnoxious manner if they want to and the most that will happen is that someone will leave, but that’s not an issue as there are plenty of people willing to take their place. It doesn’t really help that unions don’t seem to care either, unless you’re a care worker in the public sector.

  • Simon Gamble 4th Oct '10 - 4:36pm

    I agree with Colin Green that in an ideal world the minimum wage would be enough to provide an acceptable standard of living. However, in the real world that is unlikely to happen in the short term. Perhaps Norfolk Passmore could explain why he thinks it is acceptable for a highly profitable company not to pay enough to provide a decent standard of living.

    To Chris_sh – I have Googled “Tesco wages” and that gave a figure of around £6.50 per hour. That fits my definition of “close to” the minimum wage of just under £6.00 per hour. I have also invented a character working a 40 hour week for £6.50 per hour and used the benefits calculator on the DWP website. That calculated tax credits and council tax benefits of nearly £180 per week.

    To me, that figure is an effective subsidy as it represents the additional money he needs to be paid because his employer chooses not to pay enough for a decent standard of living.

  • @Simon Gamble
    “I have Googled “Tesco wages” and that gave a figure of around £6.50 per hour”
    Strange, apart from new starters, the only time I saw anything around that amount was from some years ago, everything I’ve seen from more recent times talked of £8+. In fact when our local store opened a few years back, that was the rate they advertised in the local papers and job center (which set some alarm bells ringing about your OP) – you may want to check your figures.

    “I have also invented a character working a 40 hour week for £6.50 per hour and used the benefits calculator on the DWP website. That calculated tax credits and council tax benefits of nearly £180 per week.”
    So it wasn’t based on fact then – just conjecture from assumptions in your calculation. I have no issue with that as long as it is clearly advertised as such, also the assumptions made may also be useful to help your readers understand where you’re coming from (e.g. did you assume it was someone living alone or with family, were there any savings or additional income etc).

  • @Niklas Smith
    “Where it might be worth looking to penalise employers through the tax system is for their history of sacking workers.”

    I hadn’t heard of this before, but it does sound attractive as I believe that staff turnover can be a good indicator of the type of employer you’re dealing with (that’s only a personal belief based on my own experience btw). It’s a bit of a shame that Simon picked on Tesco as an example as I believe that they have a rep as trying for low turnover (as it reduces the overall workforce cost) and do attempt to incentivise their staff.

    PS – just to avoid any misunderstanding – the only contact I have with Tesco is when they take my money on the weekly shop.

  • Simon Gamble 4th Oct '10 - 9:52pm

    I hope it was clear that I accept that smaller companies and start-ups may not be able to pay staff much more than the minimum wage. That is why I am not advocating a substantial increase in the minimum wage. However I do resent the fact that some highly profitable companies pay such low wages that their staff have to claim benefits to top up their income.

  • @Simon Gamble
    “However I do resent the fact that some highly profitable companies pay such low wages that their staff have to claim benefits to top up their income”

    Is the best way to solve this by starting from a position of resentment? I know people who’ve been on benefits for years and who make very little effort to get work. If I resent that should I put forward a proposal that anyone out of work loses all benefits after say 18 months, even if it means they have to live on the street and die of starvation?

    Companies will pay the going rate for wages, which would normally be set by supply and demand? What if a company pays more than the going rate but the staff still needs benefits? Do we reward them for at least trying or do we still punish them for being evil capitalist pigs? What happens if said companies import Euro labour to do the job? These workers may not be able to claim benefits in this Country so the company won’t show up on the radar, in the meantime many jobs are lost to the indigenous population.

    “I hope it was clear that I accept that smaller companies and start-ups may not be able to pay staff much more than the minimum wage. That is why I am not advocating a substantial increase in the minimum wage.”

    What happens if a large company runs into trouble, or even if they see trouble ahead and try to plan for it? The IR and its inspectors are experts in tax affairs, are they to become expert business planners as well so that they can tell if a company will go bust if they have to pay this tax? Alternatively, do we say tough luck and pick up the tab for unemployment benefit when the company folds?

    Finally, how would you manage such a scheme. Would you use number of employees or turnover as the cut off point, who would monitor all of this and how complex would the monitoring/enforcement need to be (after all, the more complex, the more expensive). Bearing in mind Gov Depts never seem to have a problem swallowing more and more funds, how are you going to ensure that the system is cost effective?

  • Daniel Henry 6th Oct '10 - 7:33pm

    I like Ed Miliband’s idea:
    http://www.guardian.co.uk/politics/2010/aug/22/ed-miliband-minimum-wage-labour-leadership
    Giving Corporation Tax breaks to companies that provide a living wage makes good sense to me.
    It’s more of a carrot incentive than minimum wage stick approach.
    (I still think we need a legal minimum wage, but getting a living wage should be through encouragementrather than coertion.)

  • Daniel Henry 6th Oct '10 - 7:34pm

    Which is kind of what the article was suggesting.
    Companies that don’t provide minimum wage paying more tax.

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