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Mark Ellse: Osborne’s living wage will be a greater disaster than Brown’s bloated tax credits


If there is one thing more unkind than paying someone a low wage, it is paying that person a higher wage for a while and then reducing it. Effectively, this is what the Lords-Osborne row about tax credits is about. Tax credits are undoubtedly appreciated by those who receive them. They have adjusted their expenditure (upwards) to suit. The withdrawal of tax credits is both morally and fiscally essential, but the way that it will probably have to happen is undoubtedly cruel for those affected.

Responsibility for this withdrawal lies not with the present government but with the Blair-Brown regime that rashly scattered cash around without considering the consequences. Tightening the purse strings now, though painful, is essential if we don’t want those same members of our society to experience greater travails in future.

But it might be worth trying to avoid similar mistakes. And I put my head on the block by saying it, the Osborne ‘living wage’ will prove to be an even greater disaster for those at the bottom end of the employment sector.

When tax credits were proposed, it was instantly apparent to those of us who ran payrolls that those on tax credits would be subject to huge marginal rates of taxation, to an extent that strongly undermined incentives for those on low wages to better their own lot. And so it has proved. Many of the current arguments for reducing tax credits are because they encourage dependency on the State rather than on than self-reliance and self-improvement.

The consequences of tax credits were understood not at all at the time by most of those voting for them. I wrote to my then MP, the charming and intelligent LSE, Oxford and Harvard educated Tony Wright who was ‘surprised’ by the figures I showed him. Only a few, like vocal opponent Frank Field, on either side of the Commons, had any idea of the the shocking implications and future burden that tax credits would present. And so, here we are, clearing up the mess.

The same will happen with the ‘living wage’. This great Osborne initiative will prove a disaster. Well-intentioned it is, but for those at the bottom of the skill range it will simply end many of their jobs. The Low Pay Commission reckons that the modest rise in the minimum wage from current £6.70 to £7.20 per hour in April 2016 ‘may cost more than the 60,000 jobs previously predicted‘. Can we imagine what the proposed rise to £9 per hour over this Parliament will do?

All this living wage idea is shrouded in virtue signalling. Those who advocate it are filled with blessed thoughts, but have simply no understanding at all of those who are on low pay. As a teacher, and as the owner of a transport company for nearly twenty years, I’ve both taught and employed the high skilled and the low skilled.

The simple fact is this: if employers are required to pay all workers a minimum of £9 per hour, the low skilled will never even get onto the lowest rung of the employment ladder. The proposed national living wage will produce a base unemployment level far exceeding a million. It will be far crueller than the withdrawal of tax credits. And the agony will come in dribs and drabs. One by one we will be saying, ‘You’re too expensive. No job for you tomorrow. And no job for you. Nor for you…’

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Mark Ellse
Mark Ellse
Mark Ellse is a physicist and author. He is a former headmaster, independent school inspector and A level chief examiner.

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