Wednesday, 27 February 2008

National Minimum Wage & Tax Credits

At some book launch or other, David Blunkett MP (Lab, Sheffield Brightside) "will argue that the statutory rate should rise steadily to 50% of average wage levels if the Government is to meet its target of halving child poverty by 2010".

Righty-ho. Let's assume that they go mad and increase the NMW from £5.52 to £6.86 (half average wage). The speech refers to 'child poverty', so let's look at a single mum (oops! 'lone parent' in Newspeak) with two kids working 35 hours a week. She currently has a gross income of £193.20, after paying tax and claiming the main benefits, her household's net after housing costs according to DWP TBMT Table 1.3e (page 53) is £223 a week. If they up the NMW to £6.86, her gross income increases to £240 and her net household income to a princely ... £227 per week.

Wot? An extra £4 a week? Yup, that's right, £4.

Conversely, we all know that demand for labour is pretty price elastic - if you force employers to pay more than a job is worth, they will go bankrupt, and so people on the current NMW will lose their jobs. So single mum outlined above may well become unemployed as a result of the change, as a result of which her net household income would fall to £175 (DWP TBMT Table 2.1a).

Which is hardly a storming result is it? Half of such single mums with a job might see their net income increase by £4, the other half will see their net income fall by £48, not to mention the overall loss to the economy, lack of role model for her kids etc etc.

Finally, let's not forget that David Blunkett miraculously secured a job with Entrust, a company bidding for the ID-card nonsense, see Garrick Elder's letter in The Times of 24 Nov 2007 exactly five minutes after his two-year lobbying ban expired.


Simon Clark said...

Yeh, banning low skilled workers (many of whom are parents) from working is a petty shit way or reducing 'child poverty' i.e. it does the opposite.

And that's what the minimum wage does in case anyone was wondering ;)

Ian Bennett said...

Hang on. Isn't 'poverty' defined as earning less than 60% of average wage? In which case, increasing the minimum wage would have no effect because it would also increase average wages and they end up chasing their own asses. (Which would at least be better than talking out of them.)