It won’t, and here’s why: The Minimum Wage, whilst a noble sounding idea, actually cripples the people who are working at that pay grade, and even people working slightly above it. It is a pleasant sounding idea used by politicians to promise something that they don’t personally have to deliver, which sounds nice, but has a detrimental effect on the cost of living and affects everyone from the poorest people in society to pensioners and people struggling on benefits.
In order to understand why it’s detrimental, we have to understand what a company is. On the most basic level a company is a commercial business. A company needs to make a profit in order to survive, and whilst many companies out there, such as Tesco, Morrisons and Aldi can afford to pay the minimum wage to their staff, easily and with no issue.
For smaller businesses, this is an incredibly hard task. Smaller companies will find themselves hit very hard by Minimum Wage and Corporation Tax increases, and as the majority of small companies in the UK are currently struggling to survive as is, increasing pressure on them is unreasonable and unsustainable.
When the Minimum Wage is increased, this eats into a company’s profits. The company has to pay staff more, therefore they have to earn more to keep the staff employed. This raises the cost of goods and services. It also puts jobs at risk and possibly prevents the company from hiring new employees. I will explain this in more detail later.
Let’s run a quick demonstration. An increase of 30 pence per hour to the minimum wage will cause a lot of damage. If we take a worker, working full time at 36 hours per week, and 52 weeks per year, the math to how they are paid is as follows. (For the purposes of this exercise, we are not getting into holiday pay, sick pay and other expenses to employers.)
30 x 36 = 1080 so: £10.80
£10.80 x 52 = £561.60 Per year.
The minimum wage is currently: £8.21 per hour. A worker who is on it and working full-time at 36 hours a week will receive around: £15,370 per year. With this in mind, £15.370 divided by £561.60 = £27.36. So for every 28 workers in your company, you could theoretically afford to employ one extra worker, reducing workload and risks and giving someone a job with the money it would take to increase the Minimum Wage. Some companies will choose to lose a worker rather than to increase their expenses, which will increase pressure on employees.
So as a worker or employer, how is your tax increased when the minimum wage goes up? The Tax Rate as of writing this is: 20% after your first £12.501 earned. Meaning that if you have an income of £15.370, you will have to pay tax on: £2,869 so that would be: £573.80 per year.
Let’s say we increase the minimum wage by only 30 pence. With an increase of total earnings going up to £15,931.60 (£15.370 + £561.60) – this also increases the amount of taxable income to £3,430.60 (£2,869 + £561.60) Which ends up being £686.12 taken in Tax. That’s £112.32 more in tax which will account for a fifth (374.4 of your 1872) of the bonus pay in regards to hours of work throughout the year, which means that you won’t benefit from 30 pence. You will get slightly less than 30 per hour over the year.
This video explains some of the issues behind increasing the minimum wage pretty well:
With employers having to pay all the staff more money, they will usually increase the price of goods and services to compensate, which affects everyone in society. The increase is always at a much higher percentage than the Minimum Wage because of VAT and other factors. There will be more information on this later, as there are more costs when it comes to hiring staff than simply the Minimum Wage increase.
So How are Goods Affected?
Let’s take a basic shop for example. The shop buys low, and sells high. This means that all goods have an initial cost the shop owner has to pay to procure them. These goods will go up in price, which means there is an increase on what the shopkeeper must pay to obtain the items. If the shopkeeper keeps their items at the same price, their profit margin deteriorates on top of having to pay staff more money and pay more corporation tax. This is not viable as all businesses need to profit in order to survive. On a basic level they would have to increase their prices to factor in 1: The increase in the initial cost of the item. 2: The Minimum Wage which has increased staff costs and 3: Corporation Tax. These three factors will affect the basic price of the item. Then on top of that, we add VAT. All prices will then be rounded up at least to the nearest penny in order to ensure that a loss is not made.
Services are similar as we have to take into account say callout fees which would have to factor in rising fuel costs and the Minimum Wage. For digital services, there are also development costs. In cases where there are no development costs for a complete digital product, prices will still rise due to other factors such as website hosting costs etc.
So What Other Pay Factors Affect Companies
Companies in the UK provide a number of different services to employees asides from paying them the Minimum Wage. In terms of hired hours, there is Statutory Sick Pay or SSP which is paid to employees who are ill for over 3 days of work. This is lower than full time minimum wage, however the Company then has to pay someone to fulfil the role. Currently many companies in the UK will have an overtime incentive rate for people to come in and work more hours. Even without this, when someone is ill, a company has to hire in someone for at least the minimum wage, so it is paying out at least Minimum Wage to cover shifts. This when added to SSP costs more than Minimum Wage alone as you are paying out to two rather than one employees for the purposes of the month’s outgoing costs.
Companies are also affected by paying National Insurance. Any employee which is earning above £166.01 per week will have to pay more into their National Insurance, which is 12% on money earned after the first £166.00 and will come out of the Employee’s paycheck. Increasing the Minimum Wage will push more people into the bracket at which Companies pay National Insurance. They will also cost the company more money in regards to them having to pay towards their employees. Companies pay 13.8% on all money earned after the first £166.00 into their Employee’s National Insurance – This will also affect their profit margins.
Holiday Pay Is something almost all workers are legally entitled to, and this is usually around 5.6 weeks paid holiday per year, or 28 days. Employers will have to employ someone at minimum wage to cover shifts that are no longer covered, so effectively they are paying a much higher rate out during employee holidays in order to keep the staff levels high. Some companies can reduce their staff working in order to cover this financially but it forces staff to work harder which can breed resentment within the workforce.
With a higher Minimum Wage to pay out to their full staff, employers will compensate by increasing the value of goods and services. On top of the increases to prices, VAT is added increasing disparity between the meagre benefit to the worker, and their overwhelmingly increased cost of living. The Minimum Wage increases will never cover the amount added onto goods and services and acts as an illusion to make people feel like they are earning more.
Companies and Training
With the introduction of GDPR, any person working for a company who handles any form of company and/or personal data of clients will have to have GDPR training. This can amount to being very costly if a lot of people require this training. GDPR is a very important law and companies need to put in a lot of effort to be compliant.
Mandatory Training has to be provided by many different companies across the country in regards to Health and Safety, Fire Training and Care and Medical Companies have to provide extremely extensive training for all of their staff. This is not without it’s costs.
Other companies have job specific training programmes in order to ensure that their employees are trained to a higher skill level for better job performance. These are not always mandatory, and can be cut if expenses are high, leaving managers with the complicated task of training employees at work.
The prices of training will increase as the Minimum Wage increases, and as Corporation Tax increases.
How Can Companies Save Money When It Comes To Increased Corporation Taxes And Minimum Wage Increases?
Corporate Inversion
Reduction/Replacement of Staff
Increasing Prices of Goods and Services
So What Is a Corporate Inversion?
A Corporate Inversion is a strategy employed by companies in order to save money. The company selects another country which has a lower taxation rate and lower wage requirements for staff and they move the company abroad. This strategy has been employed by many notable companies.
There are several ways in which the Corporate Inversion are employed. The company can either purchase or merge with a foreign business, or even build a new business in this new country which is no longer placing all the financial restrictions upon them.
The old company sells or transfers its assets to the new company. Once the new company owns all the assets, the old company is dissolved and ceases to exist. The new company retains the assets and business continues as usual, domiciled in the new country.
The main two advantages of the Corporate Inversion for the purposes of our argument are:
1: The Company no longer has to pay the workforce a specific wage set in stone by the country. So they will no longer have to adhere to minimum wage laws, as the company is now outside the jurisdiction of the UK.
2: The Company is no longer having to pay a ridiculous amount of Corporation Tax, and it can also avoid other taxes which are unique to the UK’s taxation system.
Corporate Inversion is completely legal and it is an excellent strategy to deal with changes to the minimum wage and taxation. It is not considered to be tax evasion as long as it’s information remains honest and is not misrepresented in any way. You can find out more about Corporate Inversion here on Wikipedia in this article, which features a couple of high profile examples. Companies which have indulged in Corporate Inversion will no longer have a UK based office and their communications will be located overseas in order to avoid Corporation Tax. Staff who are unable to transfer will sadly have to be let go if no job can be found for them in the new company structure. Whilst it is an employer’s duty to find jobs within the company for staff should a job no longer be available, all roles within the UK will sadly no longer exist or they will already be filled with competent workers, causing old employees to be axed during the process.
Reduction/Replacement of Staff
There was a time in the UK when there were no self service checkouts and when we were visiting the shops, there were always plenty of staff to assist at checkouts. Over time as the minimum wage has increased, and staff numbers have deteriorated and in many large stores, people have been gradually replaced by machines in order for businesses to save money. There are quite a few ways to remove or replace staff.
Role Adjustment requires that workers either conform to a new and improved contract or they can no longer continue within their job. If you are a worker, you may have noticed that everyone in the company has a new contract to sign, and usually this will contain an expanded role. It may only seem slight, but sometimes it can be pretty overpowering with a huge amount of new tasks and responsibilities. Mandatory role adjustment has seen a lot of use whenever the minimum wage is increased, ensuring that staff provide extra services within their workload in order to make up for the money spent on keeping them. This benefits companies in two ways: Firstly, they will get more out of their staff, and secondly, the lives of their staff become slightly more unbearable as work stress increases. This results in people leaving the company of their own choice allowing the company to take on less people. This results in a lower amount of staff on the floor and the staff having to work harder. The worst part is that as the value of money deteriorates, they are technically earning less for harder jobs, but they believe they are earning more.
Voluntary Redundancy is something some employers might offer to staff as an incentive to choose to leave a business role willingly. They can talk about the pressures the company is going under, and offer it as a golden handshake to a good old employee. I’ve personally taken voluntary redundancy during a situation when my old company was going through hard times. It is one of the kinder ways of lowering staff levels.
Increasing the Prices of Goods and Services
This is a simple solution which all businesses will partake in. Asides from increasing pressure on the staff, thinning out numbers and working out ways of cutting down their expenses in regards to the staff, the companies will increase the prices of both their goods and services to compensate. As all goods cost more to procure, their resale price will rise naturally. On top of this the company will have to raise prices further to cater for both an increase in Corporation Tax and the Minimum Wage. Once these values have been catered for, we get on to VAT.
VAT will not increase, but the percentage, 20%, will remain the same. A 20% increase on price on an item that is £1.00 will be 20p, which will total out at £1.20. If we increase the price of an item to compensate say, to £1.20, then add VAT, it then becomes £1.44 but that doesn’t look right, so as a business owner, I’d up that to either £1.45 or £1.50 to compensate for the loss. This is factoring multiple variables in the form of both the Minimum Wage and Corporation Tax bearing down on my business. Regardless of the fact that the % has stayed the same, the item’s cost has increased by many times the benefit to be made from that extra 30 pence per hour.
How Does This Affect People On Benefits?
People on benefits rely on assistance from the state. Due to the drastic increases in costs for goods and services, the value of their benefits and government support deteriorates, as the money is no longer worth what it was before the increases to the minimum wage, and when corporation tax goes up and companies compensate by hiking up their prices, it makes the cost of living go up and puts unfair pressure on society’s most vulnerable. It will be harder for the unemployed, pensioners, people relying on benefits and low income families to survive.
Anyone eager to see a minimum wage increase should realise that not only will this hurt them, it will also hurt society’s most vulnerable. The hidden cost of the Minimum Wage affects everyone negatively, and applying more pressure to companies with increased Corporation Tax also increases the cost of living for everyone. So no one really benefits from it apart from the people who use it as leverage to make their political policies seem caring, compassionate and kind. They would rather not mention the detrimental effect it will have on society, which we see every time the Minimum Wage increases.
Some of the things that will be affected are: House Prices and Rent, Gas, Water, Food, Fuel, Internet, Repairs on Houses, Cars etc, and Phone Contracts. These increases are not catered for by the Minimum Wage increase.
So Why Does This Happen?
Money does not have a static value. It’s value changes over time, based on a large number of factors. Just because the number you believe you are getting is higher than it was, does not mean you are actually getting more money. If you earn the Minimum Wage and it is increased by 30 pence an hour, the value of your money will inevitably be reduced, so in effect you are actually earning less, even though the numbers are higher – and it looks better at a glance!
Politics and Morality
On the 25th of November, 2019, the Mirror released an article revealing that 163 ‘Top Economists’ Believe that Labour deserves to form the next Government. This was also featured in the Financial Times… A list of them on their letter can be found: here – These so called Economists have for whatever reason chosen to betray the British people, the poorest and most vulnerable in our society and our small businesses, sacrificing their credibility. In their letter, they claimed that increasing the Minimum Wage would help – despite the fact that history shows us whenever it’s increased, it damages the workers and the poorest in society. It brings a strong credibility to the idea that those that do – do, those that can’t do teach, as the majority of these Economists are teachers.
You can learn a little bit more about raising the Minimum Wage from Patrick Bet-David in this video here.
There are more than 163 Economists in the United Kingdom, and not everyone is politically motivated in their claims. An honest economist will not factor in their personal beliefs, but instead they will look at the numbers honestly. They will consider that for a start, the value of the pound, the value of money changes, this happens every day! They will consider that Minimum Wage will not pay out more than the cost of living will cost. They will consider the issues increasing corporation tax on businesses of all sizes. They will consider the fact that after retaining it’s profit, keeping VAT in place will add that beautiful 20% of tax that affects everyone in our society, rich, poor, young and old. This is added above the threshold that the company has to reach in order to maintain profit by the way. Anyone who argues that this can somehow ‘benefit’ the poorest in society is not competent enough to be called an Economist and certainly should not be trusted to provide a fair and unbiased analysis.
To Conclude
The Minimum Wage has a cost. Not only does increasing it negatively affect the value of what you earn, but it also makes it so employers will pay equal pay, at the lowest pay for unequal work or effort. It reduces people’s urge to work harder for better money as it becomes less and less possible for people to afford the things they need to survive. Those which do not receive a significant boost to income above the minimum wage will suffer most.
Corporation Tax amplifies the negative effect on the cost of living, as it increases the price of goods and services, and it also applies heavy pressure onto smaller companies which cannot necessarily cope well with it.
VAT is added on at the end and makes everything even worse. It’s an insidious tax that affects everyone from our children to the elderly.
Politicians try to convince people that they should be earning more out of the companies they work for by pointing to areas of life where people do not have a lot of money. They highlight the financial issues people are struggling and say: Wouldn’t it be nice to earn more. Little does the majority of the population realise that it’s just an illusion. It sounds great, earning more. But this will always come at a cost, and the people who are hurt by it will always be the poorest and most vulnerable.
The Politicians will point to the large corporations which have the money to pay people and highlight that they have the money, and that a lot of the time, they are using loopholes to evade paying tax. Look at the rich, look how unfair the divide is. They do not take into account small businesses and business owners that will go under, ultimately costing people their jobs, and making the quality of life and costs of living more unbearable than before. Of course, this can then be blamed on the rich, the corporations and businesses, when it is in fact the people putting in these regulations who are responsible for the decrease in the value of the pound.
