Tories’ Tax Cuts Take on Labour’s Wage Hike

Photo Credit: UK Parliament

Photo Credit: UK Parliament

As the 2015 General Election gradually creeps nearer, the pledges have begun as to what party leaders will do should they be elected to office. As the leaders of the two biggest parties, pressure is on for the Conservative’s David Cameron and Labour’s Ed Miliband to woo the voters and appeal to their interests. On the 21st September and 1st October respectively Ed Miliband and David Cameron, both addressed one of the most salient concerns of the UK voters: disposable income.

Miliband has pledged to increase minimum wage (which was increased on 1st October from £6.31 to £6.50) to £8. Cameron has pledged to cut taxes to an extent that he claims would benefit 30 million voters: increasing tax-free personal allowance from £10,000 to £12,500 and increasing the 40p tax threshold from £41,900 to £50,000, the result saving basic rate taxpayers at least £500 per year.

Both pledges seem appealing. Both pledges are misleading.

The recent minimum wage increase of 3% is a greater growth than in previous years and is larger than recent inflation figures which have been hovering at around 1.5% for the Consumer Price Index and 2.5% for the Retail Prices Index. Miliband’s pledge presented an £8 minimum wage as a contrast to the new £6.50 figure, citing its discrepancy from the living wage which would be £8.80 per hour in London and £7.65 elsewhere. However, Miliband’s pledge for the target of £8 was for implementation by 2019. If he is using the current economy as his touchstone then if 3% growth in minimum wage were to persist, the figure would be £7.53 anyway and the living wage, the wage one needs in order to live reasonably, would also have inflated to be ahead of the £8 mark.

Whilst implementation of an £8 minimum wage next year could lead to inherent instability at a 23% increase and with those earning between the minimum wage and £8 expecting a rise reflecting this, Miliband’s gesture appears grand but lacks the substance to be politically or economically persuasive.

Cameron’s pledge on the other hand appears to offer benefits to anyone earning over £10,000 per year. By raising the personal allowance to £12,500 anyone earning said amount will save £500, and by raising the 40% tax threshold to £50,000 anyone earning £50,000 will save £2120 per year.

Increases in personal allowance are variable year by year and in the last decade have ranged from nothing to £1335 (which was last year). Whilst increases in minimum wage are expected annually and would likely occur regardless of who was in power to attempt to match inflation of real prices, there are no guarantees regarding personal allowance. Akin to Miliband, Cameron has alluded to the idea that his pledge would be implemented nearer to the end of his parliament than the beginning, but having fulfilled his commitment to raising the personal allowance during this parliament and actually ahead of schedule it may well be that he delivers this time.

The key contention against Cameron’s promise is twofold in that there has been little to suggest how he could afford the undeniably significant cuts and he has little rebuttal to the fact that part-time workers, whose median pay is approximately £8,900 per year. Something which would be tackled by Miliband’s policy should he be able to outskirt the minimum wage which would be in place by Cameron should he secure power in the relevant year. Although, should this be the case, the question of funding the increase would also be in doubt, and it could be that the labour market loses out in numbers.

Both pledges have the potential to impact upon many and both adopt radically different techniques which to political observers may well be welcome when party policies seem more and more similar. However, the strength of the pledges aren’t quite as grand as they have been made out to be and it will need to be with a close eye that the promises of party leaders are watched in the months to come.

2 comments

  1. How dry. Don’t give up the day job.

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  2. This is decent political analysis in the political analysis section. I assume you’re a Tab reader?

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