Maximum Wage Please

Amid the public’s understandable and justified anger over the role of the nation’s financial and banking elite in bringing about the recession, the government has responded with its intention of imposing a one year 50% tax on bankers’ bonuses over £25,000. Whilst any move to make the banking sector account for the criminal negligence which almost brought the economy to its knees last year is to be welcomed, the aforementioned measure, recently announced by the chancellor in his pre-budget report, is nowhere near bold enough in addressing the gross and distorting imbalance to the nation’s economy which the emphasis on the City has created over the past decade or more.

Moreover, it fails completely to begin to address the huge inequality which has defined New Labour’s term in office and which has had a corrosive effect on social cohesion and any notion of social and economic justice as constituting the objective of a government which enjoys the support of the majority of the country’s trade unions. The actual scale of this inequality, the sheer extent of its growth under New Labour, makes sobering reading. In 1997, the year that New Labour came to power, Britain’s richest 1000 citizens were worth a combined wealth of £98 billion. Ten years later those same richest 1000 were worth a combined wealth of just over £300 billion – a staggering 204% increase. This amount of wealth in the hands of the richest 1% of the population was higher than at any time since before the Second World War. At the same time the nation has seen a concomitant growth in poverty. Figures from the Joseph Rowntree Foundation reveal that in 2007/2008 13.5 million people were living below the 60% of median earnings low-income threshold of £115 per week for a single adult with no dependents; £199 for a couple with no dependents; £195 per week for a single adult with two dependent children under 14; and £279 per week for a couple with two dependent children under 14. This figure of 13.5 million constitutes a growth of 1.5 million over the three previous years since 2004/05. However this increase came after six years of decreases in the number of people living under the 60% threshold going back to 1998/99. However, lower down the scale a different picture emerges. In relation to people living under 40% of median income there has been a year on year increase over the eight years preceding 2007/08, and as a result the number of people below this threshold is the highest since records began in 1979. Compared to most other EU economies, the UK has a higher proportion of people on low incomes. Out of 27 EU countries, only 4 have a higher proportion on low incomes than the UK.



One of the reforms implemented by New Labour which were designed to alleviate poverty was a National Minimum Wage. Taking effect in 1999, it is currently set at £5.80 per hour for adults; £4.83 for 18-21 year olds; and £3.57 for under 18s. However, as a serious measure in the fight against poverty, the minimum wage, as presently constituted, has done little except institutionalise low pay. In relation to prices, housing costs, and other living expenses, the NMW has failed to keep pace with inflation. Too, over the course of its life the minimum wage has acted as a brake on wage increases even during periods of economic growth. Furthermore, by bolstering the NMW with benefits such as working tax credits, the government has effectively been subsidising the profits of employers through the taxpayer. All of the aforementioned, set in the context of the worst recession to beset the nation’s economy since the 1930s, puts a compelling case for a significant increase in the NMW along with the implementation of a maximum wage to offset inflation. There are a number of ways in which a maximum wage could operate in practice. There first of those is through a Relative Earnings Limit. This works by limiting the compensation any business is allowed to pay an individual employee either directly relative to a specific multiple of the business’s lowest earner, or to the number of people a given business employs and the average compensation paid overall. The strengths of this method are, in the case of the former option, it would limit wage gaps, while in the case of the latter it would encourage employment in order to allow employers to increase their maximum earnings. A second alternative is the implementation of a Direct Earnings Limit. This involves a limit being placed directly upon the amount of compensation which any individual can earn in a given time period. The easiest method would be in the form of a Scaled Taxation, in other words a progressive income tax.

Of course, with the panoply of tax avoidance schemes currently available, any maximum wage would have to go hand in hand with a reform of the current tax laws in order to close any such loopholes, such as allowing remuneration in the form of share dividends to come under capital gains, which levies a low 18% instead of the full rate of income tax, currently a low 40-50% for high earners. Also required would be measures to limit the amount of wealth any individual could pass on in assets and a progressive tax placed on the value of said assets, such as property, at the point of sale. What we’re talking about here is a root and branch structural reform of the nation’s economy, placing an emphasis on demand at its base rather than continuing with the present system of reigning back inflation through control of the money supply, and public spending through wage cuts for the lowest earners. Another compelling argument in favour of a maximum wage is social cohesion. This is something which impacts on society as a whole. The evidence to support the fact that social cohesion has lessened with the deepening of inequality can be measured in the growth of the private security industry along with a spike in the country’s prison population over the past decade. Even at a more fundamental level, a major cause of depression and unhappiness in society is a sense of low self esteem directly related to how well we’re doing in relation to our peers.In a society in which 1% of the workforce currently earns 17 times more than the bottom 10%, which is struggling with the effects of a global recession, the case for a maximum wage has never been stronger.