Taxpayers spend £11bn to top up low wages paid by UK companies

[blacksunday]

Businesses paying employees poverty wages are costing taxpayers eleven times the amount benefit fraud cost last year

esearch published last week by Citizens UK found that companies in the UK are paying their workers so little that the taxpayer has to top up wages to the tune of £11bn a year. The four big supermarkets (Tesco, Asda, Sainsburys and Morrisons) alone are costing just under £1bn a year in tax credits and extra benefits payments.

This is a direct transfer from the rest of society to some of the largest businesses in the country. To put the figure in perspective, the total cost of benefit fraud last year was just £1bn. Corporate scrounging costs 11 times that.

Worse, this is a direct subsidy for poverty pay. If supermarkets and other low-paying employers know they can secure work even at derisory wages, since pay will be topped up by the state, they have no incentive to offer higher wages.

None of this makes sense. We are all, in effect, paying a huge sum of money so that we can continue to underpay the 22% of workers who are earning below the Living Wage – the level at which it is possible to live without government subsidies. The only possible beneficiaries are business owners.

Britain is an increasingly unequal society. Inequality here has risen more rapidly than in any other major economy over the last three decades. Piecemeal adaptations in the benefits system have attempted to cope with this. One of the larger measures was the introduction of tax credits by Labour after its election in 1997, intended to lift the low-paid out of poverty.

However, the labour market has become increasingly polarised as manufacturing employment has shrunk. Manufacturing has traditionally been better able to provide moderately well-paid, reasonably secure work. Its replacement by services employment (now over 80% of the workforce) has meant a “hollowing out” of the labour market. A few at the top do very well, but growing numbers are pushed into low-paid, insecure work. This tendency has accelerated since the crash, with record numbers on zero hours contracts, for example.

Continued...

www.theguardian.com/sustainable-business/2015/apr/20/taxpayers-spend-11bn-to-top-up-low-wages-paid-by-uk-companies?CMP=share_btn_tw

I don't understand why anyone seriously thinks it's good 'for the economy' to have millions of people doing low-paid work, paying no income tax, getting tax credits and sometimes using state-funded childcare.

That's all v interesting, I hadn't come across figures about that before, thanks.

You might also be interested in looking up workfare and how it is undermining minimum wage www.kvv.org.uk/workfare-is-wrong (takes a while to load on my device). Apparently some companies have deliberately used workfare people to cover seasonal and temporary loads. Why bother getting minimum wage staff when you can get workfare and pay not a penny? And so the true cost of these companies for the public purse is even higher.

Couldn't it be argued that these companies are "saving" the country money by paying their staff something and offering jobs, even if they are badly paid? Without the low paid jobs, the state would be supporting those people 100% and they wouldn't be buying things like childcare and transport which also supports the economy.

I don't actually believe that, but it's not as simple as saying the big organisations should pay more - they won't they'll just manage with fewer people. Or if they did and therefore made less profit, they'd have less to invest in new outlets or less to pay to the big bosses. Which might seem like a great idea, but the big earners do like to spend.....it all has a knock on effect and is never as simple as it seems.

I was working as a small business advisor when the banks suddenly stopped paying bonuses. "Everyone" felt that was fantastic, except for the small clothing retailer outside a commuter station, the coffee shops, car dealerships, travel agents, restaurants, theatres....So many businesses were reliant on those people spending their (ridiculous) bonuses.

No one does think 'low paid work' is good for anyone, especially if even those earnings are eroded by inflation, as they were from 2008 when inflation was bouncing around 3-5%.

After 2008 when the UK LOST 7% of GDP (national output), businesses were on their knees, many unable to get credit by a still broken banking system, so private sector unemployment was significantly rising - if a UK government had said screw what the independent body to set the minimum wage WE set up says, 'EVERYONE should have a minimum £8 an hour', where no you think UK unemployment would be now, 5.6%, or nearer 11% like the Eurozone?

How many shops in the high streets across the UK were forced to close their doors, how many more (and other jobs) would have gone with an £8 mw or no zero hours jobs that had been around since the late 1990's, but not monitored/mentioned in anyones 2010 manifesto?

Manufacturing blacksunday mentions fell from 23% of our economy to 12% in 2010, but a million jobs went in the seven years to 2005, 2-years before the financial/economic crash even began - so just assuming the private sector is impervious to all external factors is clearly wrong.

The 'no income tax' bit from 2010 was the response of a government trying to HELP the masses, never mind the low paid during a great recession, who prior to May 2010 - and in response to the fall in inflation adjusted earning from 2008 - had taken away the 10p tax rate, kept Council Tax up near inflation, and was budgeting to putting National Insurance and Fuel Duty up AGAIN after the 2010 election, but was cancelled by the coalition.

Clearly LOW PAY is a massive problem to those affected as the MW is not rising fast enough from the recession, but if we maintain around 2.8% growth etc, there is no reason why we won't get to £8 an hour before 2019/20.

But if anyone thinks by putting several taxes up on regular basis (as Brown did) thereby increasing the cost base of a business and causing them to dread what will come next, is the answer to keeping even the current jobs (low pay or otherwise) - history shows that you are wrong.

Model5, that is the argument that has informed political decision making for the last 30-40 years: it's the 'trickle-down' theory. Ha-Joon Chang says that that simply is not born out in reality, and we can all see for ourselves the growing inequality and return of serious food poverty under the idea. Here's a summary www.independent.co.uk/news/business/analysis-and-features/the-wealth-that-failed-to-trickle-down-report-suggests-rich-do-get-richer-while-poor-stay-poor-9989183.html

Thank you for the figures on this OP. This has been driving me crazy for years now.

Something is very very wrong.

Well you can tell I don't do economics very well, since that link is mostly about taxation... I would say, as you said, that it is not simple, but on the face of the evidence the balance has gone too far one way.

You might also be interested in looking up workfare and how it is undermining minimum wage www.kvv.org.uk/workfare-is-wrong (takes a while to load on my device). Apparently some companies have deliberately used workfare people to cover seasonal and temporary loads. Why bother getting minimum wage staff when you can get workfare and pay not a penny? And so the true cost of these companies for the public purse is even higher.

Yes, I know all about Workfare. I've been campaigning against it for a while. It's absolutely horrible, and - apart from being morally wrong AND driving down wages - has been empirically proven to actually HARM people's chances of finding work.

That is, people who were exploited by Workfare schemes were actually slightly less likely to have found work after 9 months than those who didn't.

Even this wasn't the case, though, it would be still be wrong.

Take your propaganda elsewhere Isitmebut.

Blacksunday … ‘propaganda’ is often used with the absence of facts, so if there is NO PRACTICAL answer to all these ‘top salary versus bottom’ reports one has to wonder are they just being used politically to foster social division – which may generate votes, but as you say elsewhere, it is socially “unhealthy”.

GibberingFlapdoodle … so regarding ‘the trickle down’ theory and tax (stay with me on this), in the absence of a PRACTICAL SOLUTION to the ‘top versus bottom salary’, how taxes are collected and how they are spent, is crucial to those at the bottom.

More….

It's a two edged sword if that's the right expression. I think higher wages would lead to more unemployment. Also higher prices for everyone else in shops and services. Also more strikes for higher pay.

So lets look at the ‘real world’ and see if we can find common ground; and to start, do either of you DISAGREE that;

• In the UK the larger and more vibrant the Public Sector is, its ability to sustain a balanced economy, create jobs, fund the public sector/social services that we want AND pay off our current £1,500,000,000,000 of National Debt - ALL becomes more achievable?

• In the world there is no work ‘chicken or egg’ conundrum; the job becomes before the pay rate?

Moving on and looking at ‘fairness’, if we are looking at ‘the top’, pay rates, and the taxes paid/spent, which is MORE/LESS FAIR to the masses relying on taxes to fund their services;

A footballer earning £200,000 a week whether plays or not, paying his taxes, partially paid for by ‘the workers’ at the turnstile.

An NHS Trust Boss earning £200,000 a year no matter the results and getting a government Final Salary gold plated pension, paying taxes (for a taxpayer net tax loss) ENTIRELY funded by ‘the workers’, few of whom have similar Final Salary pension, many have no private pension provision at all.

A company Director who can grow or crash his company, earning £200,000 a year and getting a Final Salary gold plated pension, paying taxes (for a total net taxpayer gain) ENTIRELY funded by the shareholders of the company.

Now assuming that we are more concerned about the pay rates of the low paid, rather than a type of ‘penis envy’ of those at the top; let us pretend that unlike footballers all global bosses have the same skills/qualifications/experience, and look at the OBVIOUS ‘redistribution’;

• If we have a Manufacturer of ‘Widgets’* and several Company Directors on £200,000 and thousands of employees, if we cut each of their salaries to £150,000 each and redistribute, it doesn’t go too far.

And should that be practically possible in a global market place and remuneration scales, in terms of manufacturing Widget ‘Productivity’ (output per unit of input), where ‘inputs’ include labour and capital costs - the ADDITIONAL costs of a fat, incompetent, over regulating, over taxation government are not only KEY to a UK ‘widget’ companies competitiveness.

But also its survival, as we found to our British brand name cost in the 1970’s so called pre neo-lib ‘golden years’.

If we are going to create sustainable private sector jobs by producing manufactured ‘widgets’ to be globally competitive with China, the EU, or the America’s, the cost of labour is just ONE factor of many other costs a government can hoist on to a company annually (think ‘straw on a camels back’) – as that is why the UK lost 1 million manufacturing jobs 2-years before the end 2007 crash, with exporters struggling with big government and a very strong Pound, with no relief from the government labelling them as ‘the few at the top’.

More ….

even with a solution to top v bottom salary redistribution is crucial. Agree so far...

Some of the more equal societies have flatter wage ranges and less effective redistribution. Others have wide ranges and excellent redistribution. We are being hit with a double whammy of wide range and bad & increasingly poor redistribution.

So clearly(?) the key to a sustainable UK economy and the chance of a ‘fair’ society is therefore understanding the KEY roll of the private sector in that economy by NOT always treating them as the enemy – so until we get practical solutions to an equal social Utopia – government getting their own costs under control and setting the CORRECT tax balance between revenues and expenditure is prerequisite to both a vibrant private sector and shielding the poor from tax, keeping more in their pocket.

If considering that ‘State Controls’ is the golden answer to ’fairness’, whether or not looking at extreme examples of a big overpowering state citing Soviet Russia, Chairman Mao’s China, or more recently Pres, Chavez of Venezuela, it is a fact of life that THE POOR END UP SUFFERING the most, as the mobile rich can end up anywhere in the world e.g. in central London as ‘non doms’, paying taxes HERE, or not, if chased away. Lol

GibberingFlapdoodle ... do you agree with the view that we cannot tax an economy to growth?

During the golden opportunity of plenty, 1997 to 2007, why do you think the UK failed to achieve 'redistribution'?

Also higher prices for everyone else in shops and services.

but aren't we already paying those prices in our tax?

Time for my favourite oecd report again... redistribution fosters growth, inequality damages it. www.oecd.org/newsroom/inequality-hurts-economic-growth.htm

Sorry, own head-up-own bum, the paragraph further above SHOULD read (to make any sense);

So lets look at the ‘real world’ and see if we can find common ground; and to start, do either of you DISAGREE that;

• In the UK the larger and more vibrant the Private Sector is, its ability to sustain a balanced economy, create jobs, fund the public sector/social services that we want AND pay off our current £1,500,000,000,000 of

National Debt - ALL becomes more achievable?

• In the world there is no work ‘chicken or egg’ conundrum; the job becomes before the pay rate?

GibberingFlapdoodle .... re your "Time for my favourite oecd report again"

We can have 'reports' coming out of our yazoo - but we need SOLUTIONS - what is your solution, if possible taking into account the crucial part an ever larger private sector plays in creating investment, jobs, and tax revenues to pay for our public sector/services?

You've never agreed that the piblic sector does the same thing more efficiently, there's the problem. But public sector can outperform private in many areas. It is inherently more efficient taking all an economy's resources into account. I believe all necessary infrastructure should be public, run for the benefit of all.

There needs to be a balance, and it has shifted too far the other way.

Also what constitutes a thriving private sector? The current top-loaded state where 1 or 2 umbrella corporations can control whole sectors across international boundaries and empty town high streets? I'd much rather there were many more smaller companies, preferably co-operatives, and stronger localised economies.

Think I might need to check what this thread was about originally again. And do some of that parenting business...

GibberingFlapdoodle ... re the Public Sector, even if in some brave new world they could keep prices/costs at water tight as a ducks bum cheeks - the WHOLE COST of our public sector/services and even future UK debt reduction is still covered by the private sector (or government debt), the rather important bit that clearly totally escapes socialism.

Demonizing the private sector by just mentioning (currently) legal tax avoidance, rather than recognize the contribution of every other business in the UK is typical of far left socialism we are on the cusp of getting - which is a shame as Cameron and the OECD have done a lot to globally clamp down on places for some large international companies to hide tax - and just as we could soon reap the benefits, a Labour/SNP government will scare them away from the UK so some other citizens benefit.

But what would the far-left do when needing a 'Conservatives are only for the wealthy' if they DID understand that 'wealthy' companies pay all the bills.

P.S. The thread is about the role of a big fat UK government in taxing too high (as also 'creating' non front line government jobs we never needed prior to May 1997), needing to do a lot of of tax 'wee & woo', giveth a bit here, take a shed load there - and the need to go on rebalancing our economy, recognizing the ROLE of the private sector in potentially delivering everything we want.

So no one disagrees with me that; In the real world there is no work ‘chicken or egg’ conundrum; the job becomes before the pay rate?

Well this is what representatives from the backbone of the private sector says, the Small Businesses, which will be reflected across the whole business sector as the last thing Labour did before the 2010 election, was PUT UP Fuel Duty & National Insurance to companies and employees.

“5,000 small firms back Conservatives”

“Thousands of small company bosses sign a letter praising the Tories' economic plans and warning that Labour would 'undo' progress of recovery”
www.telegraph.co.uk/news/politics/david-cameron/11564460/Boost-for-David-Cameron-as-5000-small-firms-back-Conservatives.html

”The firms, which employ nearly 100,000 people across the country, have signed a letter which states that they “would like to see David Cameron and George Osborne given the chance to finish what they have started”.

”In a major intervention 10 days before the general election, the businesses praise Conservative economic plans and say that the Tories are “genuinely committed to making sure Britain is open for business”.

”The firms, from every region of the UK, say the Conservatives’ commitment to low taxes has helped “to get the economy moving again”, creating 1,000 jobs a day since 2010.”

More

Cont'd

Below is what a Labour government oversaw as short term UK job growth (as should go at the first recession), as Council Taxes went up over 100% across England under them to help fund them, also paid for by those in households on the Minimum Wage.

Councils have advertised for a ‘future shape programme co-ordinator’ – ironically to oversee spending cuts – at £70,189 a year; a ‘wellbeing officer’ at £34,500 a year; and a communications waste strategy officer at £35,055.

Assistant Director Supporting Communities; up to £90,000 – Liverpool.

Head of Participation and Partnership; £42,197 – Hertfordshire .

Climate Change Officer; £38, 556 – Braintree.

Nuclear free Local Authorities Secretariat, Policy & Research Officer; £37,543 – Manchester City Council.

Walking Coordinator; £31,935 – Islington.

Access to Nature Officer; £19,126 – Charnwood E. Midlands.

And I'm still hearing from Ed Miliband on the TV today that 'real' wages fell under the Conservatives, when they started falling from 2008, and Labour were RAISING taxes during that time - and has NO ANSWER over 5-years, what Labour would have done differently to wages on the kitchen table, other than tax them more before hand.

Turns out that hundreds if not thousands of names on the Telegraph 'small business' letter were fraudulent, as they literally printed a CCHQ press release without checking.

Thank you BreakWindandFire... I'll put my hands up, I never saw that, for some reason my copies of the Daily Mirror have not been delivered recently. lol

It seems that the main accusation is that names were used more than once, a few up to four times, but I wonder if any used 'Donald Duck'?

I ask that as many small businesses e,g shops, were totally 'Donald Ducked' and are no longer around, as received no little help from Labour after the financial/economic crash began.

The last figure I saw for London alone was 20,000 High Street shops closed, so I dread to think what is was nationally.

The point is, all businesses received as much help as the Conservative coalition could offer them, while Labour watched as real wages and businesses fell - as even if it had occurred to them, Labour weren't allowed by those baron's funding their 2010 election, to cut the non jobs and other public sector 'fat' that had accumulated over 13-years.