A question on many people’s lips is as to whether raising the minimum wage is the correct thing to do given the current state of the Manx economy.
Yesterday, the government announced that we may see the Single Hourly Rate increase to £13.46 from £12.25, and the Youth Rate also increase to £10.76 from £9.55.
As always, there are two sides to every argument and pleasing everybody is generally impossible.
I believe that government is focusing on the wrong element, and we shouldn’t be increasing minimum wage, but we should be increasing personal tax thresholds.
Raising Minimum Wage
We have three parties to consider when looking at raising the minimum wage, and the pros and cons for the three interested parties: the business owner, the worker, and the state.
Undoubtably for the business owner the news of a minimum wage increase is full of cons, but that doesn’t mean they wish to see the taxation system carry on as is.
We have heard from numerous business owners who believe that the increase of minimum wage will be the downfall of the already struggling high street, as well as being the final straw to break the camels back.
Many of these businesses are fully supportive of fair pay and want to employ staff at competitive rates, but they fear this proposal risks pushing many small businesses past breaking point.
At the end of the day, if wages go up, costs go up. Can businesses swallow the extra cost? Generally, no. What will they have to do? Increase the costs of goods. Will the consumer be happy at having to pay more? More than likely, no.
Will the consumer choose to shop somewhere more “affordable” or change their habits and eat out less? It’s probable.
Which results in what for the business owner? Less business, less money, but they still have a wage bill to pay. Ask yourself how sustainable that is. Not very.
For The Worker?
For the worker, it could be argued that it would be full of pros. But would it?
Look, I get it. There’s a lot of us right now that are struggling financially, many people are living paycheck to paycheck and cutting down on household spending, never mind some of us wondering how on earth we will ever be able afford a house deposit when we can’t make it to the end of the month as is.
I truly, whole-heartedly, get this and whilst it may be a short lived ‘hurrah’ seeing a wage packet increase by nearly 10%, it isn’t so brilliant when you do a deep dive.
More is taken by tax, and as always with inflation your everyday living becomes more expensive (circular economy coming into play) and yet again, that house deposit becomes more unattainable.
What use is minimum wage being increased if it results in more businesses closing down due to struggling to pay their staff.
It’s all well and good having a higher minimum wage, but useless if the job options are becoming limited due to less business looking for staff, or the businesses not being there at all.
“What is the solution? We can’t carry on as we are?”, I know, but stay with me and I think we have one, but it isn’t increasing wages.
The Big Boys
The state – short sightedly, it’s full of pros – but looking to the bigger picture it may not be as positive as many may believe.
For the government, those who are setting the rules yet have very minimal experience in the private sector, running their own business, and have become somewhat disconnected from many who are living off £30k a year or less.
The Treasury Minister says that “the new rate strikes the right balance between meeting the needs of our community by prioritising fair wages for those on low pay, whilst also supporting the financial stability of businesses”.
But does it? Surely the correct thing to do to prioritise those on low pay would be to take less from them, thus increasing personal tax thresholds.
Nonsense
I believe that penalising the business owner with a bigger wage bill, rather than extending the thresholds is complete nonsense.
I think it’s buttering up the low paid worker and making them believe they’re earning more, when the reality is, they aren’t.
The only real winner? The government, because of course if wages are put up, so are taxes – the more you’re paid, the more you’re taxed – it isn’t rocket science.
Do The Math
Currently, if you’re on minimum wage of £12.25ph and work 37hrs a week, you’ll earn £23,569 before taxes.
Personal allowance for a single person is £14,750.
Your taxable income is currently £8,819, whilst the first £6,500 is taxed at 10%.
Therefore, your remaining taxable income is £8,819.00 less £6,500 is £2,319, taxed at 21% is £486.99.
Let’s add them up and your total income tax is £1,136.99.
However, with new minimum wage proposals of £13.46ph (£25,897.04pa) – repeating the same formula as above, your income tax has jumped to approximately £1,626.
Yes, your wages may increase, but so does your tax bill.
Thresholds?
But ask yourself this, if thresholds were increased, who is the loser then? Not the worker, not the business, but the government as there isn’t as much cash to tax.
Instead of cutting the greedy public service wage cheque, we’re simply passing it on, in one way or another, to the working man. Not the big cats.
In the words of Winston Churchill, “a nation cannot tax itself into prosperity”, maybe Dr Allinson and his crew should take note.
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