If a 50% rate of tax is enough to disincentivise work, what will low or non-existent wages do?
There seems to be an accepted consensus amongst business leaders and many senior politicians – at least, the right of centre ones – that the 50p rate of tax is harmful to economic growth. The 50p rate is serving as a disincentive for wealth creation, we are told. Top earners are creating fewer jobs, moving assets abroad, generating less wealth, and in general taking extra pains to avoid their taxes. In short, taxing incomes over £150,000 at 50% instead of 40% is enough to make people fail in their patriotic work ethic.
While this may well be true, and cutting the 50p tax rate may be a good idea for a whole myriad of reasons, not least because it is possible that it actually brings in a lot less revenue, although this is still up for debate, let’s not let the government get away with this open acknowledgement about the reality of the work ethic. If it is true that people earning, say, £160,000 a year (hard-working people by nature, surely, George Osborne would argue?) flounder in their work ethic when asked to pay an additional 10% tax on the top £10,000 of their income – because the first £149,000 is still, of course taxed at a lower rate; we are only talking about paying an extra 10% on any earnings over £150,000 – you must, surely, also believe that people on the lowest incomes in the country are going to struggle with this whole work ethic thing if they’re not actually being paid enough even to live on?
Yet the work ethic principle is, of course, applied differently to the poorest than it is to the richest. Undercutting the minimum wage with workfare schemes will make people work harder. Cutting housing benefit and time-limiting ESA will incentivise work. Letting the minimum wage tumble desperately below the basic costs of living, like housing and heating, will encourage aspiration. How can you simultaneously believe that this will work, yet also believe Stephen Hester needs a bonus written into his contract, guaranteed regardless of his bank’s share price performance, in order for him to work his hardest and perform well?
There is no real need to compete for the labour pool at the low end of the pay spectrum, especially these days, with around 3 million unemployed, so it’s obvious why we bother to make a job like running RBS attractive to a range of candidates, while stacking a shelf in Asda doesn’t need to be made to look all that attractive to potential shelf-stackers, as there are so many of them to choose from. But the point is, the difference is about economics, and who holds power, and what they can get away with in order to profit. It has nothing to do with aspiration, work ethics, personal responsibility, or morality.
But people are starting to genuinely believe that the harder you kick poor people in the teeth, the more aspirational they will somehow feel, whilst also believing that the more you reduce risks for businesses like Tesco by subsiding their employment costs, and the more you cut taxes for top earners and corporations, the harder they will work. The arguments put forward over the 50p rate of tax shows this double standard up clearly for what it is: a nonsensical attempt to intellectualise any moral justification that can be found for policies which basically amount to rewarding only the people who need help the least for being lucky enough not to need it.
We need to remember that the work ethic is not automatic. It goes both ways. You will have a work ethic if you respect your job and respect your employer, and your employer respects you. If you employer treats you abysmally, you probably won’t have much of one. Work can be good for if you’re doing something healthy and constructive, that you can take pride in. Work can help your self-esteem and mental wellbeing if you’re valued and have a regular sense of achievement, but if you’re undervalued, or overworked, or made to feel worthless, or your job is derided by society, it absolutely won’t. There are too many people criticising “job snobs” for daring to point out that cleaning a floor in Tesco is, in reality, not much fun, and as it profits Tesco, it should be paid, whilst simultaneously rewarding the people who have often never cleaned a floor in their lives with tax cuts, because they are “aspirational” – not like the floor cleaners, who deserve to be punished with a sub-standard minimum wage, if that. Too many people are criticising a flailing work ethic in British society without considering how they themselves behave towards shop staff, cleaners, waitresses and even higher paid professionals like teachers and social workers, and wondering whether the scorn they heap on these workers might be a factor in that supposed declining work ethic.
So cut the 50p tax rate, by all means. Go ahead and incentivise the wealth creators to create wealth and jobs. Just stop lecturing people on a fraction of that income about how hard they should be working in order to eat and have a place to live. Because the work ethic is not an innate moral quality that people either have or lack. And if it was, then a 50% tax rate wouldn’t be enough to demotivate people earning north of £150,000 for doing something they are good at, paid handsomely for, and have almost certainly chosen to do.