Swallow your price: hands off the minimum wage
Remember the old woman who ate a spider because she had swallowed a fly? Next she swallowed a bird to deal with the spider – then a cat. The government would do well to study the nursery rhyme as it tries to extricate itself from the mess of the 10p tax band.
Ministers started by wanting to cut the 22p income tax rate. Abolishing the 10p band was the spider to deal with that. Now it is considering invoking a bird in the form of the minimum wage. At some point it must realise that each solution is worse than the problem it is designed to overcome.
The obvious flaw in using the minimum wage to help compensate some of the 5.2m people who lose from the abolition of the lowest tax rate is that it is a crude solution: not all low earners are wage earners, nevermind earning below the minimum hourly rate. There would still be losers.
But the bigger objection should be that this is not the government’s money to give away. Wages are paid by employers, mainly private companies. Ordering them to fill the hole dug by the state is fundamentally unfair.
Using the minimum wage to cut off the political rebellion over the tax band is a desperate move but it is wrong in both practice and principle. Not only is it wrong to push up business’s costs, it makes the minimum rate a political tool rather than a market incentive.
This year, for the first time since it was introduced in 1999, the minimum wage is being increased by less than the retail prices index, thus increasing the incentive for workers to get off the state-set wage and earn a better rate. Artificially raising the minimum to avoid political embarrassment undoes that welcome trend.
But if the chancellor plans to introduce some new incentive for business to compensate firms for their higher wage bill, that would be worse still. More bad decisions do not make the earlier ones any better. In the end the old woman in the rhyme swallowed a horse - and she died.
