Tuesday 16 April 2013

The great Tory welfare contradiction

I must admit I had a small moment of relief, even pride in the Lib Dems, when I heard that Vince Cable had resisted calls to prevent him from raising the minimum wage for apprentices - as well as for everyone else.

The adult minimum wage is now raised to £6.31.  It is still below the level it needs to be to make it a 'living wage', and until it is, the government will still be subsidising employers, which is a ridiculous position to be in.  Old-fashioned Liberals like me still cling to the dream, not just of a minimum wage, but a basic income paid by right of citizenship, allowing us to dismantle the bureaucracy of welfare, partly at least.

But that, as Rudyard Kipling would say, is another story.  Certainly another argument.

What is significant is that Vince Cable raised the minimum wage on the very day that the benefits cap was introduced in a few experimental areas in London (in Mrs Thatcher's day, they used to experiment on Scotland; now it is London).

Is this deliberate on his part?  If not, it should have been, because it reveals a deep contradiction in the traditional Conservative position on unemployment.  They have two propositions, both of which are true:

  • It must pay people to come off benefits and get a job, otherwise the welfare system continues to trap people in dependency.
  • People in jobs must not price themselves so highly that they can't get a job.
Both of these are quite correct, but - in practice, taken together - they contradict each other once they are put into effective policy.  It means either that we should lower the level of benefits so that it pays to take a job (the justification for the benefits cap) or we should lower wages to make people more employable (the Conservative backbench position on the minimum wage).

In practice, one policy renders the other one impossible.  Doing both together would instigate a miserable, self-defeating race to the bottom, where welfare payments keep being cut to undercut falling wages.

The truth is that wages are already far too low to sustain a prosperous economy.  It is self-defeating to reduce them to Far Eastern levels because the demand would then disappear from our own economy, and - when boardroom pay went up 49 per cent in 2010 alone - this seems unlikely to have much leadership and example behind it.

In practice, you can't cut welfare benefits and wages and expect to achieve both outcomes.  There is the Great Contradiction.

The problem of low wages is at least part of the problem about the benefits trap.  When around a fifth of people working in the UK are not earning a 'living wage', then we have a problem - and the problem is that tax-payers is expected to subsidise employers, and I don't see why we should.

Nor is this a problem that is confined to the low paid, given that inflation is now rising at a rate twice that of wages.  The effect it is having on the middle classes, and whether they can survive at all, is the subject of my book (out next week) Broke: Who killed the middle classes?

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