We subsidise firms that keep workers in poverty

The Conservatives should back a Living Wage for workers. It would show they cared about ordinary people, while cutting some of the ground beneath Labour


Commodity trading seems to attract those characters who feel property dealing too ensnared by ethics, and the bonuses in banking just not big enough. Clearly, it is profitable work – yesterday the Financial Times disclosed that these people have ridden the mineral boom to pocket an astonishing £160bn over the past decade, creating scores of new billionaires and millionaires in the process.

At the other end of the pay scale, it was announced that the minimum wage is rising by 12p an hour for adults to £6.31 an hour. So someone putting in a 40-hour week would earn £252.40 – although many reliant on such wages while serving in shops and slaving away in fields endure piecemeal and part-time work, so do not even make these pathetic sums. Forget about Iain Duncan Smith surviving on £53 a week; could you live on this?

These two stories illustrate the widening global inequality, as a small cluster of self-serving plutocrats plunder the world’s wealth while millions of their fellow human beings struggle to survive in a chilly economic climate. So the Government deserves credit for resisting calls to freeze the minimum wage, even over-ruling the Low Pay Commission on apprentice pay. Yet we need to ask a profound question: why should the state encourage firms that refuse to pay decent wages?

This question was brought home to me earlier this month while talking to people about welfare in Wythenshawe, a sprawling suburb of Manchester. Quite rightly, those in jobs took a tough line on neighbours who could work but chose to coast through life on benefits, at other people’s expense; they thought the Coalition far too wimpish on such claimants, and were amazed that the £26,000 benefit cap introduced yesterday was so high.

Few earned such sums; they worked for self-pride, sometimes to the derision of friends. One woman who rose daily before dawn for a part-time job that brought in less than if she were on the dole bemoaned a 50p rise in her daily bus fare; while talking to her, I thought guiltily how little I would suffer from such an increase. This underlines the flip side of the benefit crackdown: that work has to pay, and pay properly. Yet all too often the rewards on offer are pitiful.

I thought guiltily how little I would suffer from a 50p rise in my daily bus fair

Many companies are sitting out the economic storm by piling up cash, some paying staff peanuts while the bosses hand themselves bigger pay and better perks. The gap between rich and poor is widening – while the greed of some fat cats is sickening, especially those slick sycophants who slide into top jobs without the slightest understanding of entrepreneurship, risk or innovation. These people – often at the helm of cosy corporate cartels – underline the need for more disruptive capitalism, not less.

While it is delusional to think that inequality can be eliminated, there is something very wrong when a heavily indebted nation takes taxes from hard-pressed families to effectively subsidise firms that underpay their workforces. But this is precisely what is happening with the complex, bureaucratic and backfiring means-tested tax credits system used to top up the pay of poorer people.

As so often, the fault lies with Gordon Brown, who took a sensible scheme introduced by Ted Heath and inflated it to such an insane level it defies logic, and disincentivises work. There were 734,000 people on this support mechanism when he became Chancellor; by the time he left Downing Street, their numbers had soared close to sevenfold. His legacy is all those firms paying too little to care staff, farm workers, office cleaners and shop assistants, knowing that the state will ensure they do not starve and have roofs over their heads.

One solution is simple: to ramp up the minimum wage towards “Living Wage” levels, which would be about £1 an hour higher – and more in London, where inequality is at its most extreme. This would be a move of sound political sense for the Tories, something David Cameron came close to backing in opposition. It would show they cared about ordinary people while cutting the ground from beneath Labour leader Ed Miliband and repairing damage done by trimming the top rate of tax. And we have moved on from the days of Margaret Thatcher; even her former policy adviser Ferdinand Mount now worries about inequality and calls for responsible capitalism.

There would be protests, just as when the minimum wage was introduced in 1999, but studies show the long-term economic effect would be surprisingly negligible or even mildly positive. Better pay reduces expensive staff turnover and raises productivity; it also ensures that extra money swirls around the economy. Already, many bigger companies pay the Living Wage, with low wages most commonly found in sectors that cannot move abroad such as catering, hotels and retail – although some small firms might suffer.

The first retail boss to guarantee the Living Wage in London was Mark Constantine, founder of the Lush cosmetics chain. It cost £300,000 a year – but he was inspired by staff telling him that they had to take other jobs to ensure they could live and afford childcare in the capital. “You are not lifting people into some nirvana,” he told me. “You are just taking them out of misery.” This is not just a better business model, smart politics and more sensible for the nation – it is also morally right.

React Now

iJobs Job Widget
iJobs General

Business Analyst Consultant (Financial Services)

£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...

Systems Administrator - Linux / Unix / Windows / TCP/IP / SAN

£60000 per annum: Harrington Starr: A leading provider in investment managemen...

AVS, JVS Openlink Endur Developer

£600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...

E-Commerce Developer

£45000 - £60000 per annum + competitive: Progressive Recruitment: Exciting opp...

Day In a Page

Read Next

Letter from the Political Editor: Phone and data laws to be passed in haste

Andrew Grice
The first lesson of today is... don't treat women unequally?  

Yvette Cooper is right: The classroom is the best place to start teaching men about feminism

Chris Maume
A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial