mudhook

About 48 000 households in Cornwall worse off

Labour argued for and introduced a 10 pence income tax rate because, it said, it was fairer to the low paid and would make work pay and thus be an incentive to work for the poor. I think in fact that the best way to help the poor would be to raise the tax free threshold and to cut regressive indirect taxes such as VAT, but Labour chose another, less efficient way. Nevertheless Labour did act on tax and also created a minimum wage to help the low paid.

In his 2007 budget Gordon Brown announced the abolition of the 10 pence income tax rate. The change comes into effect tomorrow.

Belatedly some more Labour MPs have just realised that this abolition will leave about 5.3 million households worse off. These are largely the households without dependent children and who do not have tax credits and who have incomes of between about £5400 and £18 500 a year. Way back in October 2007 the government gave its estimate to Frank Field of how many would be worse off and even said 900 000 of those had incomes below £10 000 a year – actually the number refers to the household reference person (Hansard 18 October 2007 column 1266W).

Field was on to this unfairness at the time of the 2007 budget and tried to get an impact assessment of tax changes on different groups and transitional arrangements if necessary for those on the lowest pay: his clause was rejected by Labour MPs though a handful of six Labour MPs and most Libdems voted for it, along with a few others (Hansard 25 June 2007 column 108 onwards). Julia Goldsworthy and Matthew Taylor both voted for Field’s clause and Dan Rogerson was a teller for it.

I can estimate how many households in Cornwall are adversely affected by the abolition of the 10 pence rate by comparing the number of households in Cornwall with the number in the UK and those adversely affected in the UK. This arithmetic suggests that suggests about forty eight thousand households in Cornwall are worse off because of the abolition of the 10 pence rate. As the proportion of low income households in Cornwall is greater than in the UK generally, the number affected is probably greater too.

Labour has done much, though nothing like enough, to help the poor since 1997 while keeping the economy sound and the bulk of the electorate on side. It has wrought a sea change since the barbarian days of the Tory governments 1979-1997. Things are now beginning to fall apart. It is difficult to understand this 10 pence tax policy. Labour is making a lot of low paid people worse off and doing it on purpose. Is this what people voting Labour thought they were voting for? How does this square with the minimum wage? This policy of soaking the poor is pitiable and shameful. The government should put its mistake right and ensure the low paid are not worse off.

PS The Conservatives officially abstained in the 25 June 2007 vote.

Let’s be clear at the beginning. This is the policy of a Labour government we’re discussing.

Alongside the good news about the modest rise in the minimum wage is some bad news about the taxation of the poor.

From next month, when the income tax provisions of the last budget come in, the lowest paid will pay more income tax; the better-off will pay less. The budget abolished the 10 percent tax band and that’s the cause of the injustice. It means anyone earning less than about £19 000 a year will pay more income tax; people above that pay less.

People are liable for income tax when their work income reaches about £104 a week. People on very low earned incomes indeed will pay more tax.

Labour is rightly trying to reduce child poverty and, although progress is being made, this is proving difficult. The increase in the minimum wage will help. The loss of the 10 percent band and the consequent increase in income tax for those on low and modest incomes will reduce their take-home incomes and will worsen child poverty.

Disproportionate numbers of people in Cornwall earn low wages. This tax policy will make them worse off. The low paid in Cornwall are about to get a kick in the teeth from Labour.

I don’t know what, apart from socially unjust and stupid, you call a policy of taxing the poor more and the better-off less but I doubt it was what Labour voters thought they were voting for.

The adult national minimum wage is to rise to £5.73 an hour in October. At present it is £5.52.

It is a modest rise but still unalloyed good news for low paid workers in Cornwall, the sort of practical real-life measure that benefits them. Since the wage was introduced in 1999 it has risen by fifty nine percent.

For 18-21 year olds the wage will be £4.77 and for 16-17 year olds £3.53.

The minimum wage is not profligacy and not generous but represents affordable economic justice, there is a good case for London having a separate and higher minimum, and the abolition of the ten percent income tax band last spring penalised the low paid unjustly; but the wage has succeeded in helping the low paid without increasing unemployment - contrary to what was direfully forecast before it was introduced.

Will you read of the rise in the national minimum wage on the nationalist and Libdem websites in Cornwall? Will they welcome it?

See a previous post about the minimum wage here .

The Cornwall Labour Party blog draws attention to welcome progress in falls in unemployment here in Cornwall.

Since Labour came to power unemployment has fallen by about 9 400 in Cornwall. See here for the detailed data for each of the five Cornwall constituencies; it also explains how unemployment is measured.

The fall in the numbers of unemployed people in Cornwall constituencies is about two thirds overall. In the same period the fall in UK unemployment was 45 percent, significantly smaller than in Cornwall. The Cornwall constituencies are among the top tenth of most improved UK constituencies ranked by these percentages; we have made serious progress.

This good news seems to have been unrecorded so far by the Liberal Democrat and nationalist websites in Cornwall.

However, the Liberal Democrats here have acknowledged in Matthew Taylor’s words: “The fact is that the Cornish economy has started to turn round” since the dismissal of the Conservative government, though they claim credit for their Libdem efforts.

Of course, pay for workers in Cornwall remains problematically and stubbornly low and this is affecting negatively the lives and opportunities of many people. Progress is unacceptably slow.

Low pay also affects the funding of the NHS here and will be a factor in any move to reduce benefit levels, national pay scales, and the minimum wage in Cornwall. See this post and this on the blog.

In 2006 the median average gross pay for all fulltime, adult employees in Cornwall was £357.5 a week. This was 79 percent of the England figure of £453.3, a very modest improvement since 1997. Mean average pay is higher and so is median and mean average pay for males everywhere.

Again, even in the averages there is variety within Cornwall. The median pay (in 2006) for Penwith workplaces works out at about £2000 a year less than in Carrick.

See here for the ASHE income details.

David B Smith, professor of business and economic forecasting at Derby University, has suggested that the national minimum wage should be revisited.

In an article for the Economic Research Council ‘Does Britain have regional justice or injustice in its government spending and taxation?’ he argues rightly that the economies of the regions of Britain differ and therefore the effect of the same government spending and taxes varies from region to region; and, contentiously, therefore that government interventions, including social benefits and the minimum wage, should vary to fit those differences.

The argument is that, for example, national-level unemployment benefits and welfare benefits in areas of high pay mean people are much better off in work than on those benefits; however, in regions with low pay those benefits may be a disincentive to work; indeed, government transfers of resources to less favoured regions may counterproductively discourage an enterprise culture. I think this is a telling argument and should be explored further.

However, I think it is not just a matter of regional economics; these are people’s lives and pricking the poor and ill to make them more economically productive is an ethically difficult project. There would have to be observable gains for individuals to make it acceptable. The effects of reduced benefits are likely to vary for individuals: for the able idle a cut might well get them into work. I am at a loss to see how a cut will encourage a drug addict or alcoholic out of his distress and into work; for him benefits are a response to his illness not a cause of it.

Smith also argues convincingly that the point at which the minimum wage is uneconomic, pricing out employment, varies from region to region. Those areas with high productivity and high living costs in relation to the average should get a higher minimum wage. And, conversely, the minimum wage should be cut in low pay, low productivity areas.

That means that in the southwest region, including Cornwall, the minimum wage should be cut.

At present the minimum wage is £5.35 an hour for an adult, say about £214 gross a week. I think knocking £15 a week off that in Cornwall and the southwest region is hardly likely to have any discernible effect on people’s behaviour except to make poor people poorer and heighten their perception of social injustice.

I agree there is a case for saying that in London, for example, the national minimum wage is too far low as it does not take into account the economic circumstances of life there; that is the regional injustice. Pay in many jobs already takes into account the noticeably higher cost of living in London. However, I disagree that the minimum wage should be cut from its present level anywhere. It is at a modest level and a cut would be a real-life injustice for working individuals.

I do not believe a modest minimum wage is in reality an economic monster. Yes, increases in it can have an effect on the viability of businesses and the ability of businesses to employ people. However, the government has been cautious and astute in increasing it and in consequence it has not so far damaged the economy. That is the way to go: affordable economic justice. There is also desirable social solidarity in a national minimum, the nation’s ad imissimum of earned wages. The early claims of Conservatives that it was an economic folly that would damage the economy and businesses and employment have proved unfounded and now the Conservative party support it, though that may be due to political realism as much as economic observation. Interestingly, the Liberal Democrats initially toyed with regional-level minimum wages rather than one of national uniform level.

Is anyone listening to Smith’s challenging arguments? The article ‘Gordon Brown to vary minimum wage over UK’ in the Sunday Telegraph for 22 July 2007 suggests that the Labour government is looking at regionalising the minimum wage, varying it from region to region or even locality to locality to reflect the realities of the local economy. That would be a major shift in economic and welfare policy. However, I think the title in the newspaper is bolder than the article which is somewhat indefinite.

It occurs to me that there is, of course, another possible and contentious change: the regionalisation of national pay rates, taking into account local pay in the private sector and the ease or difficulty of recruitment and retention of staff. The Cornishing of current national pay for professionals in, say, education, health, and local government would be downwards. Would it apply to Cornwall’s MPs?

See here for a post on average pay in Cornwall and (un)employment.

There is a large range in deprivation and prosperity in different parts of Cornwall. The official statistics show that some parts of Cornwall are among the poorest in England but others are prosperous. In these circumstances generalised comments are limited in usefulness.

I put below details for Cornwall of some of the measures of deprivation.

Free school meals, education spending, and housing - see separate posts.

The official indices of multiple deprivation show that Cornwall districts are not the most deprived of the districts of England. In 2004 the districts were ranked thus in deprivation order (rank of average scores):

Penwith 56th out of 354 districts in England
Kerrier 87th
Restormel 93rd
North Cornwall 106th
Carrick 149th
Caradon 157th

On the sub-ward measures of multiple deprivation the most deprived sub-ward in Cornwall is part of Penzance East ward which comes in at the 819th most deprived out of 32 482 sub-wards in England; the least deprived in Cornwall is part of Saltash Burraton ward in Caradon which ranks 30 899th. (Sub-ward is officially called super output area, SOA, in these statistics.)

In the ranking of shire counties Cornwall and the Scillies in 2004 is the second most deprived after Durham; in the ranking of counties and cities and London boroughs Cornwall is 75th out of 149 in England (rank of average scores).

In all these deprivation statistics 1st is the most deprived; the lower the rank the worst the incidence of deprivation.

PAY
Updated 11 July 2007

The annual survey of hours and earnings (ASHE, ONS) for April 2006 gives the median average annual earnings of all adult fulltime workers; this is the most typical wage. In Cornwall this ranges from £17 400 in Penwith to £19 700 in Carrick (Table 7.1a, weekly averages annualised by me to the nearest £100). The Cornwall/Scilly median is £18 600.

These figures put Cornwall in the bottom part of pay leagues.

CHILDREN IN POVERTY

See the post on free school meals too.

In October 2006 the association of public health observatories (APHO) and the department of health published data about public health including the proportion of children in poverty, that is children living in low income households. These particular figure relate to 2001.

For Cornwall the figure was 19.9 percent. The district with the highest figure was Penwith at 24.8 percent. In comparison the figure for Liverpool was 45 percent and County Durham 25 percent.