Clark Vasey is the founder of Blue Collar Conservatism
Is an above inflation increase in the National Minimum Wage the way to ease the pressure on low income families and demonstrate to them that the Conservatives are on their side? There is a growing body of opinion which cuts across the Conservative Party which believes it is.
Increasing the Minimum Wage would put more money in the pockets of those on the lowest incomes at a time of continuing economic difficulty. It would recognise that the Minimum Wage has fallen in real terms over the past six years (although this is true of many people’s wages). It could, if communicated effectively, potentially tackle the misperception of the Conservatives as simply being ‘the party of the rich’ amongst many voters.
For any Conservative looking to help people on low incomes these are certainly compelling arguments. It is absolutely right that the Conservatives are debating ways to increase the income of those struggling in difficult times. However, such a rise has to be considered within the context of the UK’s economic recovery and getting people into work. As Mark Wallace said on Conservative Home last week, if we could simply vote ourselves richer we would, but things are not that simple.
The Chancellor is reported to be cautious about the move, preferring to leave the decision to the Low Pay Commission. At a time when Conservatives in Government are making progress towards securing the UK’s much needed recovery, he is right to be cautious.
An above inflation Minimum Wage increase would quickly become counter-productive if it placed undue pressures on growing or struggling businesses, created a barrier to employment or saw a reduction in the hours of people already in work. The Chancellor is right when he said that the Government must “get the balance right between supporting business, growing our economy and making sure it is a recovery for all”.
A minimum wage increase would benefit those in work earning this minimum, but it would not be beneficial to those seeking work if it meant fewer jobs were created. For the benefits of the recovery to be properly shared by all we must get more people into work. The Conservatives recognise the importance of this, as is evidenced by the introduction of the new Employment Allowance to allow businesses to claim back the first £2,000 of their National Insurance bill. Above all we should be making it cheaper for companies to hire people and to reward them with higher wages.
There seems to me to be an obvious solution to increasing the money in the pockets of those on low incomes, without placing the burden on employers at a time when we need more jobs to be created and the pace of the recovery to continue and increase. We should pledge to increase the personal allowance so that it is more closely aligned with the Minimum Wage, sooner rather than later.
Someone working fulltime on the minimum wage earns around £13,100 a year. Based upon this an increase in the personal allowance to £13,000 a year would seem reasonable and realistic. Going forward, such a principle of alignment of the minimum wage and the personal allowance, would ensure that those earning at this minimum level would continue to keep more of the money which they earn. A tax cut to help hard working people.
It would end the anomaly whereby those earning the minimum wage are taxed on that income. On the one hand that this is the minimum amount which an individual should be earning to avoid falling into poverty, yet on the other hand we tax this minimum income and thus reduce what the individual takes home. We then supplement this taxed ‘minimum’ income through additional in-work benefits. Surely it would be better to reduce the ‘in work’ benefits bill by allowing people to keep more of their own money in the first place? The potential savings to the benefits system by closer alignment between the Minimum Wage and the personal allowance was clearly set out by Jacob Rees-Mogg in the Daily Telegraph recently.
Labour will never let the Conservatives forget that they opposed the introduction of the Minimum Wage. Yet Labour were happy to allow a situation where those on the minimum wage had to pay income tax on that money and then introduced a complex system of tax credits to supplement an income which they themselves had reduced.
An increase in the personal allowance to £13,000 would send a strong message that the Conservatives are acting to put more money in the pockets of the lowest paid. It would demonstrate that we are on the side of those on low incomes. It would bring many of the same benefits as an increase in the Minimum Wage, such as reducing the ‘in-work’ benefit bill, but with less risk to business and job creation.
It would show that we recognise that many people are struggling and place us firmly ahead of our Labour and the Liberal Democrats in wanting to make things that little bit easier. It would also prevent the Liberal Democrats from laying claim to a policy which is clearly based upon the Conservative principle of lower taxes.
The truth of the matter is that we are already moving in this direction. With each rise in the personal allowance, the debate moves on to what the next rise should be. The time has come to make this bold move by creating a clear link between the personal allowance and the Minimum Wage and making a personal allowance of £13,000 Conservative policy.