Increase the minimum wage

Minimum wages are starvation wages. Households cannot afford to subsist on the wages that companies are allowed to offer - a position that has remained unchanged since the Communist Manifesto.

I've never been what anyone might call a full, red-blooded Marxist. Nor, for that matter, even a centre-leftist. Not even a Labour supporter. Indeed, for a brief period in my student days, I belonged to a disreputable political party who later fell into disfavour and ridicule, and rightly so; only then did I realise I was, perhaps, a little too right-wing in my views, and sought to moderate them. I grew up in an era and a region where casual racism was rife and I internalised many words, phrases and sentiments as a child from the adults around me that, if repeated today, would certainly result in the loss of my employment, and perhaps even my liberty. However, as I matured from child to young adult, and from young adult to middle-age, my political outlook was ameliorated by my friends, my experience and my surroundings, swinging back towards the centre; a natural Blairite, perhaps, or a left-wing small-c conservative, leaving me never quite sure which way to vote at the polling booth. However, there was one constant; the more I learned about political philosophies, the more certain I became that capitalism, and the free market, was responsible for the continual improvement in the quality of life enjoyed by my generation, the generation before me and the generation just starting out.

Someone much cleverer and well-versed in political matters once stated, to paraphrase, that as one grows up, one starts as a natural Communist; moves in a gentle trajectory towards the right-wing, and by maturity has perceived the wisdom of conservatism. I feel my journey has been rather backwards; starting from the right-wing, I am only now beginning to perceive some of the attractions of the socialist cause. This is not to say I have become a Marxist; my first encounter with the Communist Manifesto was only recently, and I found it, as have others, flawed in several regards. But the fact remains that our Government and the Establishment of the United Kingdom has a deep grounding in socialist thinking. The swell of popularity for Jeremy Corbyn and his very narrow miss when swinging at Prime-Ministership is evidence of this, as too is the continued existence of the National Health Service, still one of the world's only examples of a functional, if not stellar, nationwide healthcare system where there is no concept of transactional payment for services rendered, and one that is open to the poorest and the richest of citizens alike. When one looks into the socialist agenda, personified today by groups such as Extinction Rebellion, and discards the hooting and derision aimed at such groups from the right-wing, it is possible to find good ideas within, and valid criticisms of the current capitalist model.

My train of thought was started by considering a line from the aforementioned Manifesto in which Marx and Engels state, in essence, that the fruit of capitalistic wage-labour is the bare minimum required to sustain life in the proletariat; more specifically, this can be read as the bare minimum income for food, shelter and clothing. My natural instinct was to disbelieve this statement, since in today's fairly prosperous Western civilisation, many earn more than the minimum; white-collar jobs abound, and it is perfectly possible to pass an entire career seated, in comfort, in front of a keyboard, and never breaking a sweat. However, some tentative adding-up on the basis of the minimum wage disquieted me a little; try as I might, I could barely get the cost of the necessities of a civilised life to balance with the income expected at the minimum income level.

To illustrate what I mean, let us consider the archetype of the idealised nuclear family; two children, two parents and a modest mortgage somewhere in suburbia. One parent works full-time; the other remains at home. This family owns one three-to-five year-old car, out of warranty; they holiday in the UK sporadically, or occasionally somewhere package-friendly like Spain; they send their children to the local comprehensive; and entertain no overly-expensive hobbies. I shall pretend for the purposes of example that London does not exist, by doing so conjuring a reasonable cost of living. Now, let us assume that the working person (their gender role is irrelevant here) earns the minimum wage and both parents are aged around 25, and do some calculations.

Minimum wage at present for over-23s is £8.91 per hour; for 40 hours/week, this equals £356.40 gross/week, or £1,544.40 gross/month. Deducting tax, National Insurance and assuming, for simplicity, no pension contribution, then monthly tax is £99.38; monthly National Insurance is £89.65; leaving a take-home amount of £1,355.37. With some other basic assumptions (house is council tax Band A; both children are 5 or under; no sickness or disability is required) then the Universal Credit benefits award adds £500.05/month, and Child Benefit is £152.32/month, leaving a total net income of £2,007.74/month.

Now, let's assume some expenses. For a modest, Band A house in the suburbs (and not within 100 miles of London) we can assume a mortgage of around £150,000-£175,000, which equates, at a 2% fixed-rate introductory deal for our imaginary couple, to around £650/month. Council tax is approximately £115/month, variable depending on our couple's local council. Gas and electric tend to run around £120/month on average; we add water/wastewater charges at £35/month, broadband (widely considered an essential utility) at another £30/month; plus two mobile phone bills at £25/month each. This leaves food for 4 - we assume our nuclear family does not shop at Waitrose, and so requires around £30/week/person, so approximately £550/month adjusted. We assume the car is fully owned and car insurance is £600/year, or £50/month; tax, another £15/month; annual MOT and service, we assume £300/year or £25/month on average; petrol, £40/week, mostly for commuting to work. We allocate a clothing/toiletries/sundries allowance of £20/person/week - if this sounds like a lot, recall how quickly children grow and how many items of clothing they require (to raise a child to 18 years old reportedly costs a minimum of £170,000). Finally, we add a television licence at £15/month. There are many other possible bills, but we leave these out of our calculations as they are as our family is wholly imaginary; they have no debt other than the mortgage, the salary is reliable, the car is owned and they have few if any unforeseen financial emergencies.

What are our totals? Recall our family's net income is £2007.74/month. Well, our expenses add up to £2,135.00/month, amounting to a monthly deficit of £127.26. The family is in debt, and cannot afford to live with the necessities outlined above. With modest tweaks to the food budget, or swapping the car for the bus, it is just possible for the budget to balance, but there is certainly nothing left over for entertainment or to invest in raising their quality of living. This reality recalls this 160-year old observation in the Communist Manifesto, as relevant today as ever:

"No sooner is the exploitation of the labourer by the manufacturer, so far, at an end, that he receives his wages in cash, than he is set upon by the other portions of the bourgeoisie, the landlord, the shopkeeper, the pawnbroker, etc."

This realisation led me to reconsider my assumption that the minimum wage was a sufficient lifeboat for poorer families. With the calculations laid out bare, it is a chilling fact that many families are barely better off working than remaining unemployed. Our toy example also ignores the realities of many people's lives - as of June 2019, according to the Guardian, the average unsecured household debt was £15,400 per family. Interest payments must be made. For many, 40 hours paid employment per week are neither regularly forthcoming or available. Still more are faced with severe disability or illness, for which the Government compensates a little over £89/week on the highest rate of Disability Living Allowance. Many have more than two children; the two-child benefits cap remains in place (at the time of writing), attracting no additional Child Benefit element to counteract the increase in expenditure. Some unfortunates find themselves without a legal avenue to work; illegal immigrants, for example, forced to subsist on illegal slavery wages, or Tier 4 visa applicants who are limited to 15 hours per week by law, ostensibly here to study but starving in the process.

Turning these thoughts over led me to the reconsideration of capitalism, or the free market, as a suitable framework under which to run a country for the benefit of the people living within it. It strikes me that the core of capitalism, the core of any business, is the product or service. More specifically, it is the goal of achieving a regular and reliable income from the profit generated by the sale of products or services for more money than it cost to produce them. So where does this profit go? In good, well-run companies, one would assume, if designing the capitalist society afresh, that a portion of this additional income would be reinvested into the company for growth and stability during lean times; a portion would go to the company owners, to compensate for the risk of ownership (and the potential catastrophe they would incur should the business go under) and as a payment for running the business; and a final portion reinvested into the employees, to persuade them to remain employed and for their enjoyment by way of bonus, pay rise or other financial reward. This system seems fair. As an employer/owner, you can look forward to a modest dividend, more than a wage, but not an indecent proportion - enough to help compensate for loss should the business fail, and to reward the risk of your liability for the business assets, infrastructure and operation. As an employee, you are paid a fair amount (higher than minimum wage); the profit in the business is reinvested for growth and you look forward to new internal opportunities for promotion; higher wages and a valid career path.

Some companies are run like this. Many are not. I see two fundamental problems. First, the owners of companies are shareholders, and shareholders are not always those who have invested their capital (risk) or take any personal interest in the running of the company. This can reduce the relationship of the company owner(s) to their employees down to zero, and incentivises the running of a company at bare minimum expenditure in order to maximise profit for absent shareholders, inflating the value of the company. This is the essential business model of vulture capitalists. This has the effect of applying downward pressure on wages, which in turn forces wages towards the minima; consequently, for low-skilled workers (or, more correctly, workers for whom their skill set is not specialised enough to be uncommon or rare), working for companies with remote shareholders will always tend towards the bare minimum wage allowed by law - this wage, as we have demonstrated, is not enough to run a 'normal' household without incurring a financial deficit.

The second problem I see is the worship of the product, or the profit, to the detriment of the employee. The business is product-centric. While lip service may be paid to employees - who here has not filled in an employee satisfaction survey, or engaged with an Investors in People audit, or responded to some other questionnaire of employee wellbeing? - the epicentre of the business model remains the product and, consequently, the potential profit. Employees do not generate profits directly; they detract from profits. For most businesses, over 60% of costs are salaries. Yet, employees are essential. Why, then, do they go unrewarded? Why do they take no part of the success, or the profit, of an organisation when it is their labour that made the profit possible? While business owners may make the case that it is they who run the company, that it is they who took the risk of incorporation, that it is they who carry the risk of business failure every day and it is they who work more hours than their employees keeping everything afloat, should it be that business owners take the majority of the reward when the majority of work is done by others?

Workers at a company are swapping their time for money, but if this level of remuneration is not sufficient to raise a family then this minimum level needs re-examination. However, what determines the minimum level is of no interest to business. They are in it for the profit, not the happiness of the employee. Employees, after all, can be replaced and the lowest-paid can be replaced the fastest. Ideally, of course, companies would recognise this familial financial deficit and collaboratively agree that wages need to rise, but there is no incentive for this while companies are owned by faceless individuals and tax-efficient offshore non-entities with no connection to their workers. Under a dehumanised, profit-centric business model, people are treated as non-people; merely automata, who fulfil some function in exchange for some capital and no consideration is given to their condition.

I do not claim to have a solution to this problem, which has occupied sociologists and political philosophers for at least two hundred years, perhaps more. I do have an observation, which is this: given that companies are unable, by design, to spontaneously increase the minimum wage, them we must rely on a centre-left, socialist intervention, external to business, to moderate the behaviour of companies; namely, to increase the minimum wage to a living wage, enforced by law. The minimum wage must be increased to a level where a debt-free family existence with enough leeway for enjoyment of life is not just barely possible, but readily achievable. Against our financial example above, an increase by just £1 per hour results in an additional £173.34 (gross) per month, enough to wipe out the deficit four times over. An increase by £2 per hour allows enough traction for the household not only to improve their quality of life, but to insure against emergency, stabilising the household and lifting families out of penury.

Every action has a reaction, said Newton. Where is this additional money supposed to come from for employers to pay employees enough on which to live a comfortable existence? While Newton is quite correct (albeit in the realm of physics rather than economics), the reaction - the need for additional funds - can be met by two measures; the absorption of excess wage costs against excess profit, effectively redistributing the wealth of the company more evenly; and the increase in cost of goods or services to the consumer. I dismiss the argument that an increase in the cost of goods would result in an increase in household expenditure simply because so many companies produce goods or services that are not paid for directly or indirectly by the householder; and for those businesses whose products are bought by household consumers, the net increase in wages will necessarily be higher than the net increase in household expenses, since not all products, or expenses, are affected - rent, for example, remains immune since (most) landlords do not have employee costs. Therefore, an increase in wages to the living level is key to helping to address the family financial deficit and ensuring the maximum possible amount of income can be kept by the employee.

I hold out no hope that industry will wake up tomorrow to the epiphany that workers need more capital. I look instead to the centre-left solution, the socialist idea that the free market is efficient but uncaring, the Government who is willing to intervene against reckless and unbridled capitalism to bring some humanity to the situation of the poorest in our society by ensuring a good, basic wage for all willing to work. In today's free market, profit-at-all-costs economy, it is imperative that the Government remembers it is here to serve the people, and not solely the industries, of this country. And many people are in trouble.