Achieving Fair Wages and Fair Taxes by Maximising Economic Democracy:
Market Socialism and a £15/hour minimum wage aren’t pipe dreams; here’s why…
The UK has a cost of living crisis with stagnating wages. The only incomes which are increasing are those of the very wealthy and as a result inequality is rising across the UK. The number of foodbanks is greater than the number of McDonald’s outlets, and NHS nurses have been reported to need to use foodbanks.
In one of the wealthiest nations in the world foodbanks should not be needed. With the worlds capacity to produce crops hunger should have been eradicated. Despite the fact that the population of the Earth is still increasing we have enough farmland to feed up to 10 billion people. The welfare state should have the resources needed to maintain people’s quality of life while they look for new work if their last workplace went bust, and should be able to offer security of food and home while providing skills training and vocational education if the work in an area where a person lives has changed requiring the unemployed in that area to be re-skilled and trained for new industry. This just does not happen, because of the wilful ignorance the UK Government has towards the needs of its most vulnerable citizens.
As of April 2022 the minimum wage in the UK, or ‘National Living Wage’ as it has been branded by the Conservative government, in a clear attempt to appropriate the words ‘living wage’, will rise to £9.50 per hour. The cost of living in the UK still leaves people pretty short if £9.50 per hour is all they’re earning. According to the living wage foundation, the real living wage has risen to £9.90 per hour, but in some parts of the country that isn’t near enough to cover the costs of living without state support, the Living Wage Foundation also states London as having a real living wage of £11.05 per hour.
As an individual who has considered moving to London to work in the past, this figure of £11.05 seems unrealistically low to provide someone with the same quality of life as £9.90 anywhere else in the country. The specific job I looked at applying for was on paper paying three times what I was earning at the time immediately after graduating with my Master’s degree in 2017. However the accommodation costs were so punitive that once this had been accounted for I would be £20 per week better off, so moving costs and paying a month’s deposit plus a month’s rent up front would have left me in the position of needing to work for about three years just to break even on the cost of relocation. So let’s have a look at what would be needed as a minimum wage in order for a person to get by……
People are regarded as ‘low income’ if they earn less than two thirds of the median wage, and conversely, an individual is a high earner if they earn more than 1½ times the median wage. The median wage for a full time worker in 2021 was £15.59 per hour. This within the current framework of a 37½ hour workweek works out at £10.39. However realistically we need to be moving to a 30 hour (or 4 day) fulltime workweek, and as Britain is one of the wealthiest nations in the world a living wage as a minimum wage is not enough; we should be advocating for a thriving wage as a minimum wage — not merely a living wage. This means we should be striving for a minimum wage of three quarters of the median wage. When this is done this means a minimum wage of £14.62 per hour, because this is the figure which is the outcome of the calculation of what a worker would have to achieve in order to have three quarters of the current (37½ hour) full time median wage on a 30 hour work week. Formulation below:
£15.59 x ¾ = £11.70
(£11.70 ÷ 30) x 37½ = £14.62
A £14.62/hour minimum wage falls just short of the £15/hour that some MP’s and trade unions are now calling for, and as profit is generated by the labour of the workers it is reasonable to expect profits from a company to be distributed between workers. Within an economy where a share of profits would be paid to workers (which should be a thing, and is done in some of our European neighbours), and divided between workers without consideration for their pay band within the organisation they work for as a workers dividend, where a workers share of profit is calculated exclusively based on how many hours they had worked the income of a worker will automatically fall well in excess of the minimum wage.
The workers dividend within such an economic system needs to be far more ambitious than the ‘inclusive ownership funds’ proposed during the Labour Party’s Corbyn-McDonnell era by former Shadow Chancellor John McDonnell. McDonnell’s proposal was that every worker in a business employing over 250 people would become entitled to a dividend of up to £500 per year, with dividend payments after that being paid to the treasury, and for one percent of ownership of businesses to be transferred into worker ownership until 10% of a business is worker owned. If workers are taxed at a rate of 100% of income from a workers dividend over a certain level then this becomes a separate form of corporate tax, and £500 per year is less than an hour’s work on the ‘real living wage’ per week (in fact it is £9.62/week). If we accept the socialist economic principle labour is entitled to all it creates any money derived by an individual from any task where they have not directly expended effort is money owed to a worker which has been taken by another person. From this perspective any profit a company makes which does not get paid to its workforce is a form of taxation which an employer levies against a workers wages in order to pay shareholders, rather than a tax levied to pay government in order to fund public services.
All transfer of ownership should have the eventual end goal of transfer of full ownership of a company into the ownership of a workers association of which each worker is a member, which would exist to democratically mange the affairs of the company by placing the authority to hire and fire senior management and decide the criteria by which managers and directors hire and fire workers into the hands of directors elected by workers from among their number by the same process as trade unions shop stewards elect officers from among their number to become officers of their workplace branch.
Within our capitalist economy the capitalist class in partnership with governments run by political parties they fund has developed a system where money attracts to money; as when an individual has a certain level of wealth they can achieve a level of passive income through ownership & investments. This substantially contributes to wealth inequality as there is no requirement to pay National Insurance Contributions on ‘unearned’ income, and once the income stream is established the effort to maintain it does not involve a ‘working week’ inclusive of labour, leaving a person who is able to derive unearned or passive income with the time to meaning that people who work for a living pay a higher rate of tax than people who own and derive an income from ownership of property. As long as this remains true there will be mass wealth inequality in the United Kingdom, as well as any other nation which has a similar model. In order for wealth to be distributed equitably enough for the abolition of poverty to be the outcome, then the economic system needs to be designed so that money repels money. In other terms, using physical laws as metaphors, the way money should interact with money should be like that of two particles of the same charge or two magnets of the same polarity, rather than gravitational forces, where the bigger the net wealth of an individual, the greater the ‘gravity well’ of their bank account.
In part the inequality which national insurance contributes to can be corrected, if all income were considered a single income for tax purposes then people would be required to pay NIC on all income, but this is not the only inequity in the way national insurance functions; the NIC workers must pay has recently increased from 12% to 13.25%, but NIC has always been a regressive tax with people who earn more paying less: At present the 13.25% rate applied to people earning between £190.01 — £967 per week, however people pay 3.25% on anything over this amount (before the NI rise these rates were 12% and 2% respectively).
As it stands a worker on a low wage pays a higher proportion of their income in taxes than someone on a higher wage. The regressive nature of NI is only one the contributors to this. Council tax tends to be higher in areas with more deprivation as the local authorities need more money in order to run the services necessary to care for the local area, but the workers in these communities have a lower average wage. If someone with an income just above the minimum wage pays £2 in VAT on an item (as VAT is passed onto the consumer) in addition to the cost the seller charges for that item, then they have paid a greater proportion of their income in tax on that transaction than someone who earns above the median wage; within this example someone on £10 per hour has paid one fifth of an hours wages in tax on that transaction whereas someone on £20 per hour has paid one tenth of one hours wages; the outcome to this is poorer people paying around 12.5% of their income in VAT whereas richer people are paying about 5% of their income as VAT, and the overall tax burden on the wealthiest 10% of earners is about one third of their income is paid as taxes, whereas the poorest 10% pays almost half (42%).
This is a long way from economic justice (or even economic sense) in a nation in which is simultaneously one of the wealthiest nations in the world, but still has foodbanks and welfare is often provided by charities. Poverty in a nation as wealthy as Great Britain can only be attributed to either incompetence or cruelty on the part of national government.
Policies do not exist in a vacuum; whether they are useful or not, whether they are progressive or regressive, depends on how they interact with other policies and the outcome they produce. In order for this substantially higher minimum wage to be implemented in a way in which smaller businesses could cope with it would need to occur alongside several other policies so that these businesses did not have to immediately raise their prices so high that bigger businesses could immediately price war them into bankruptcy & absorb them by buying them at rock bottom prices. The minimisation of VAT and any non-piguvian indirect taxation would be the most useful starting point; the minimum wage goes up, but a mechanism is introduced in tandem to prevent prices going up with it: at present businesses only have to register to pay VAT if their turnover is over £85,000 per year, however this could be increased to be tied to the amount a median wage earner makes over a full working life, so only the companies with the largest turnovers have to pay it, giving smaller businesses a competitive advantage and preventing price-wars to be used to drive smaller businesses out of business.
This revenue, within the climate emergency we are living in, could be made up through the implementation of a Carbon Emissions Tax, charged to all businesses on the carbon footprint their business operations are producing. This gives a clear competitive advantage to companies and businesses which decarbonise their operations over ones which do not, while bringing in money for the treasury. Other measures to make our tax system more progressive can be made such as the replacement of council tax and business rates with Land Value Tax, which is a flat rate per unit multiplied by the number of units of land a person owns. Unlike council tax and business rates LVT is charged to the owner rather than the user of the commodity being taxed.
The idea that taxes are levied against an amount of money, either set in stone or a percentage of a monetary amount needs to be changed; this is far too crude an idea for a fair system of tax. Taxes need to be levied first and above all else as taxes on wealth inequality, and secondly on wealth derived from environmental or social harm. This means that graduated income tax needs to be seen as one aspect of the use of the tax system to ensure social and economic justice, graduated corporation tax needs to be used to offset the competitive advantage given to bigger businesses over small businesses through economies of scale.
Graduated corporation tax needs to take a specific form. We already have a corporate tax which is a tax on corporate profit however a secondary corporate tax and a wage inequality tax could be applied to businesses so that corporate income over a certain high level was taxed regardless of whether it was profitable (as an example this rate could be set to match the full career earnings of the threshold by which a worker was considered a high earner multiplied by the number of years between the nations voting age and state pension age), and the percentages of tax levied are double for businesses which have a wage differential higher than the highest earner making more than x7½ the lowest; in other words the point where the hourly rate of pay for the highest earner exceeds the daily rate of pay for the lowest; creating a tax incentive to improve the rates of pay of lowest earners in a business, an incentive which could be made greater through the creation of a ‘corporate minimum wage’; a mandatory requirement that the lowest paid staff member in an organisation is not paid less than 1/30th of the highest, creating in effect a maximum wage within a company so that no person is paid more per hour than any worker is paid per week, forcing businesses with a very high wage differential to give a pay rise to its lower paid workers.
These proposals would end the notion of a work ethic being defined as a workers willingness to work oneself to exhaustion, and would increase wages at a faster rate than the increase in cost of living making part time work a financially viable option for more workers creating many jobs directly, and with the extra money and free time people would have create a thriving leisure industry. As areas with higher unemployment also have lower average wages, in these areas part-time working would become a financially viable way for individuals to support themselves leaving part-time workers without the need to take a second job. This in turn frees up employment opportunities for job seekers.
As pointed out the tax system needs overhaul, the point at which people start paying personal income tax should be tied to the point where a person would be considered a ‘low wage’ earner. Every individual should have a tax free earnings allowance of at least two thirds of the median wage, and the tax bands we use should be far more graduated so people would be paying a tax rate of one half of all income over the median wage multiplied by the average number of people in a household. Individuals who cross that threshold where they must pay a 50% tax the threshold to be required to pay that rate would reduce by £1 for every £2 income over this point, until the 50% threshold had been reduced down to the median wage, and a personal income floor would be established where people on low income from part time work whose personal income in less than half the full time median wage receives half the difference between their personal income and half the median wage through negative taxation. The distinction between ‘earned’ and ‘unearned’ income should be abolished for the purposes of income tax, so all income, regardless of source, is taxed as a single income.
The difference between the median income and mean income can be used as a good measure as to the level of inequality between those of average income and those with excessive income. In 2018 the mean income in the UK was £34,200, compared with 2021’s median income of £30,400. Median wage is the earner in the middle when all earners are considered as individuals and listed in order of income, whereas mean wage is the combined income of all earners divided by the number of earners; if the mean wage is higher than the median wage, this suggests that the difference between the average earners and higher earners is bigger than the difference between lower earners and average earners. This further suggests that we can measure income inequality by measuring the difference between the median wage and the mean wage at the same point in time as a test of how much excessive wealth the individuals who have the highest income:
In 2018, mean income was £34,200 compared to that year’s median income of £29,559. This means that in 2018 the mean wage was 15.7% higher than median wage, whereas in an economy where wage increases happened consistently when all earners were placed in order of income the mean and median wage would be almost identical. The higher the difference between median and mean wages therefore, the higher the difference between the wealth of the lower and average earners, and the average and highest earners, likely focused on a small number of outlying individuals of excessive wealth within a society. This differential tool can therefore be used as a simple (albeit crude) analytical method to scrutinise wealth inequality.
