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Tax breaks for 'living wage' will reinforce inequality

If Ed Miliband believes that giving employers a tax break to pay the “living wage” will restore, in his words, the broken link between “growth and prosperity”, he is even more cynical and opportunist than we thought.

state-sponsored and funded capitalism at our expense

The first thing to say is that the Miliband proposal is a direct transfer of wealth from taxpayers to bosses who pay paltry wages. They would get a get a tax refund if they agreed to pay the living wage rate. This is state-sponsored and funded capitalism at our expense.

Whether you can actually live on £7.65 an hour, which is the new rate outside London, is questionable. More like a subsistence wage than a living one. Even the £8.80 an hour rate in London won’t get you very far after housing, energy and transport costs.

Leaving that aside for the moment, Miliband bemoans the disconnect between increased economic wealth and living standards as if this was something new, or the result of the economic storm clouds that that broke in 2008.

Yet this process of deepening inequality has been going on for much longer than the three years – it seems like a lifetime – that the ConDems have been punishing ordinary people with their austerity policies.

Miliband has borrowed the idea of a tax incentive for employers from the Resolution Foundation, which researches into low pay. But in a report last year, the organisation’s Commission on Living Standards notes that even in the boom years leading up to 2008, incomes were “faltering for a broad swath of working households”. The report adds:

GDP growth was strong, employment was high and inflation was moderate. Yet from 2003 to 2008 median wages flat-lined, average disposable incomes fell in every English region outside London and spikes in the prices of essential goods squeezed family budgets. What happened in these years broke the familiar rhythm of growth and gain for ordinary working households.

This “pre-crisis stagnation”, as the report describes it, was echoed in other countries, most notably the United States where wages have been stagnant for a generation, while even in Germany and Canada they’ve barely risen while the share of national wealth going to profits soared. Shifts in the nature of inflation – with energy and staple food goods hitting the average earner hardest – have intensified the cut in living standards.

By the time the crisis struck, these shifts in the nature of inflation meant that low to middle income households were typically paying a £400 premium on their annual shopping bills compared with those on higher incomes.

What the Resolution Foundation is describing is the impact of the credit-driven, low-wage period of corporate and financial globalisation. During this period from the late 1980s onwards, trade unions were weakened, wages driven down, jobs exported and many public services contracted out to the private sector.

The easy availability of cheap credit and house-price inflation disguised what was happening, until the bubble burst. Now it’s pay-day loans, charity and pound shops and two or three low-wage jobs to make ends meet. Miliband, of course, was a member of New Labour governments whose policies helped create these appalling social consequences of rampant capitalism.

Super-exploitation is here to stay until we find a way to go beyond capitalism itself

Without the slightest acknowledgement of his own responsibility for where we are, Miliband has set himself the task of saving the system from itself should his populist, pro-capitalism One Nation Labour win the 2015 election.

But anyone with the slightest acquaintance with economics will know that employers will take a tax break and pass on any extra costs in price rises. And if wages rise in this way, the low paid will face a reduction in various state benefits.

The reality is that inequality in Britain is worse than ever because a system in profound post-globalisation crisis knows no other way. Super-exploitation is here to stay until we find a way to go beyond capitalism itself.

Paul Feldman
Communications editor
5 November 2013

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