£10 per hour minimum wage reduces ‘welfare’

Increasing the minimum wage means the worker gets more in net wages, the taxman gets more in tax and NI, and it reduces the welfare bill.

The more you increase the minimum wage the greater the increase to the worker and to the taxman and the greater the saving to the welfare bill.

 

Take the example of a couple with three children and one wage earner working 35 hours per week at the £7.50 minimum wage and increase to £10 per hour and these are the impacts – all in weekly terms

  1. The worker gets a gross wage increase of £87.50
  2. The worker pays £17.50 more in income tax
  3. The worker pays £11.50 more in national insurance
  4. The worker has a net wage increase of £58.50
  5. The worker receives £36 less in working tax credit
  6. The worker receives £23.38 more in housing benefit
  7. Thus the welfare bill reduces by £12.62 per week (£36 less £23.38)

In overall terms:

The worker is £45.88 per week better off (£58.50 less £12.62)

The state is £41.62 per week better off [£12.62 + £17.50 + £11.50]

Thus the worker gets an overall increase of £2,390 per year and the state saves £2,170 per worker per year due to increased tax take and reduced welfare payments.

In this election Labour has promised to raise the minimum wage from £7.50 to £10.00 per hour while the Tories have reneged on their previous commitment to raise it to £9 per hour and instead now promise £8.20 per hour by 2020.

UPDATE

It is difficult to ascertain the precise figure but a cautious estimate would be 2 million families at least affected by the above. IF the state reduces its welfare spend by £2,170 per household the that is a significant saving of £4.34 billion per year which is more than the entire cost of Job Seekers Allowance for example.

As I have detailed in earlier posts as far back as 2014 Housing Benefit is in essence an employer subsidy of £5.8 billion per year as 1.1 million people in work receive it and up massively since May 2010 when there were just 650,000 in-work recipients of HB.

Housing Benefit and Working Tax Credit subsidise low-paying UK employers and if everyone took the government route incentivised by Universal Credit and numerous HB policies such as the overall benefit cap of a lone parent family working 16 hours per week and a two parent family 30 hours at today’s minimum wage it would see the welfare bill increase by around £3 billion per year.

Think on that.  If everybody worked which is government policy then the welfare bill would INCREASE.  That is perverse yet it is the welfare system which incentivises employers to offer minimum wage jobs in the full knowledge that the government pays out more in welfare.  The system is wrong and the UC system brought in with so much fanfare as the panacea to replace the complex legacy system is so much worse.

Under UC everyone would get every penny they are entitled to yet we know from the governments own figures that some £33 billion per year or £90 million every day is entitled to yet goes unclaimed and so under UC the welfare spend increases by £33 billion per year.

It is not hyperbole to say Iain Duncan Smith’s ‘welfare reforms’ are an ill-conceived mess and a shambles… that would be far too complimentary, as would calling UC a dog’s breakfast or pig’s ear.

The underlying and central problem is the subsidy the taxpayer gives to low paying UK employers through HB and WTC that only a significant rise in the minimum wage can deal with and such an increase saves the ‘hardworking family’ to use that too often used political term.  Your taxes whether income tax, vat and all other direct and indirect taxation is not subsidising layabouts as poverty porn TV bombards us with, it is subsidising unscrupulous low paying employers.

Working Tax Credit is ONLY paid to those in low paid employment and at around £29 billion per year it is a extremely costly employer subsidy to go along the £5.8 billion per year of Housing Benefit that is paid to those in-work.

The UK central government spends just over £35 billion per year on Education and the same on subsidising low wage paying employers is a correct analogy yet an argument we never read or hear or discuss.  That subsidy out of ideology and right should be removed and the saving to the UK taxpayer is merely a bonus from the increase in the minimum wage to £10 per hour which is still too low.

 

Advertisements

12 thoughts on “£10 per hour minimum wage reduces ‘welfare’

  1. that’s is correct but you lose jobs because of costs to the goods and services offered by the business are passed on the consumer who will not be able to pay or maybe not be able to pay

    businesses are run worldwide on the conservative basis of the cheapest labour possible with as much profits going to the shareholders and the owners of the business

    there overall greed have no limits irrespective on how much damage may be caused to the workforce

      1. we are not in Australia and overall they are more strict on who enters the country and most have to retake exams

        they have a good immigration record but it’s a big country with a small population so in reality the uk is not good example to make headway in this debate

        you need the basics in place first like good affordable housing be it to buy or to rent. Being able to purchase is always the preferred route which in turn leads to a better education which then leads on to better health thus taking pressures off the NHS

        if you don’t get the basics right like most countries don’t then you just have chaos in your lives in going forward just like we all see today worldwide with debt burden drugs crime murder and death

        get the basics right then you stand a good chance of uniting the country for the first time in it’s history

    1. If the Government were not so keen to line the pockets of those corporations responsible for low wages and instead paid more than the current 17% corporate tax with legislature to limit the profit margins, the new minimum wage would be paid for. Extreme profits only serve those at the top, they only impact the cost of goods if the CEO’s want greater profits for themselves, nor do the shareholders profits receive the equivalent profit in line with the price increase. Read Joe Stiglitz to learn how it works.

      1. The simple purpose of the post was to state some facts, in this case precisely what the raising of the minimum wage means.

        Those facts are the exact science of arithmetic and not the inexact science that Economics is and why I chose not to speculate and offer opinion or view as to whether a minimum wage rise would lead or not lead to job losses or job gains.

        There are hundreds of variables involved in job losses / job gains besides minimum wage .. and as I pointed out as one example Australia massively increased their min wage and that lead to large job gains not losses.

        The public want an need to know simple figures not complex and moot economic theory so that is what the post stated as irrefutable fact.

      2. corbyn has a much better chance of uniting this country’ the conservatives throughout there history have added nothing of note to the uk so one needs to understand why they are so popular

        the reason is simple they are overall a selfish greedy bunch of people who have increased in numbers which are vast and it’s that alone not only in this country but worldwide they can continue to thrive

        they exploit everything across the board leaving misery behind which in turn leads to break up of counties with disastrous results

        hopefully on June the 8th real labour will be given a once in a lifetime chance of trying to put things right

  2. Employers will also have higher National Insurance cost and decide to move production elsewhere or use Ai and robots and then everyone has to go on basic benefit which increases government spending…..back to square one..the problem is too high housing cost that’s what makes us poor. Never compare us with Oz. The only thing that saved them was China wanting their raw materials and their work ethic. Remember UK has worst productivity rates too.Just to sink us further multinationals have us by the short and curlies but still love reading your brilliant blogs

Please leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s