Creating More 'Working Poor' In The UK

I know that my belief, that the current prime minister has an agenda to push the structure of British society back to the pattern it had a century ago, is not widely held.  However, even if you do not believe that changes to the education system, taxation and benefits are not designed to cut off opportunities for ordinary people and to protect access by the elites to such opportunities, especially in terms of education, the change in society is happening anyway.  I noted back in 2008: http://rooksmoor.blogspot.com/2008/07/unemployment-as-whip.html and in 2009: http://rooksmoor.blogspot.com/2009/09/cracking-whip-of-unemployment.html that there was a desire among employers to increase unemployment because they felt that the period of prosperity of the previous ten years had led to pay rising too high and workers not being sufficiently grateful for the jobs they had.  This has come about now and you can see it in the reduced salaries being offered.  Back in 2001 I worked on projects in an office, I had no staff to supervise and was paid £24,000 per year (now equivalent to €27,800: US$38,100) and on that salary was able to rent a 2-bedroomed flat in walking distance of my work (for £500 per month) and to buy a small second-hand car and go on holiday once per year.  I was not in a position to buy a flat.  By the time I left that job in 2005, I was earning £31,000 per year.  In my last job that finished in 2010, I managed two offices and for that was paid £42,000 per year (€48,700; US$66,700), which allowed me to drive a larger second-hand car and in combination with another person, to pay the mortgage on a three-bedroomed house in southern England.  It did not permit me to go on holiday at all.

Now, as I look for work, still, as an office manager, I find that salaries are lower even than what I was being paid simply to be an office worker back in 2001.  I will take Southampton as an example.  It is a large, rapidly growing town of around 230,000 people, located at the western edge of the South-East region of England.  Using the official Department for Work & Pensions website to look for jobs, I found that last month the average salary for an office manager is now £23,000, though with some explicitly office manager posts paying as low as £12-18,000.  If you want to earn £24,000 then you need not only to have had office manager experience but also to speak fluent Spanish and Chinese.  If you can speak fluent Chinese there are opportunities for you around the world at the moment, not simply managing an office in a dull second-rank town in England. It is worthwhile comparing the salaries with the rents in the local area.  Southampton is a cheap town to live in.  You can rent studio flats (i.e. without a separate bedroom, you sleep in the living area) for £350 per month (compared to £525 per month as the norm for a studio flat, just 21Km away in Winchester).

Now, if you were starting on £12,000 per year before tax, then over a third of your pre-tax income would be going on simply renting a room.  You can pay £280 per month if you are willing to rent a room in a shared house or as a lodger.  Even if you get promoted and take the £18,000 then it is still a fifth of your pre-tax income, just on housing.  This does not include your food, utilities and travelling costs.  So, with such a job you can cover your expenditure, but with no hope of a holiday or buying a car or ever owning a flat on that kind of income.  Banks generally lend you around three times your income, meaning even at the top salary for that office manager role you would only be lent £54,000 about enough to buy a one-bedroomed flat or a two-bedroomed static caravan in Southampton. 

Perhaps I am being hard, because it is possible to live on such salaries, but I have left out all the other costs of life bar accommodation and in the UK it is easy for a single person to spend around £30-40 per week on food, taking another £1500-2000 out of your earnings each year.  In addition, you have to remember this is the salary for the office manager, I have no idea what the staff that manager supervises must be earning.  The only people who can take such jobs are those who live at home on nominal rent to their parents.  I guess such young people are really the only ones companies are interested in which is why, at 43, I have been unemployed for so long.  What is frightening is that David Cameron has sworn to make sure that you will always be better off in work than on benefits.  With salaries dropping away so fast, the only way to achieve this will be to reduce benefits to pauper levels.

Another factor is that working hours are lengthening.  In my search for an office manager post, I found they all expected you to work 08.30-17.30 rather than the traditional, '9 to 5', i.e. 09.00-17.00.  This means a 45-hour week, or 40-42.5 hours if you remove lunch breaks rather than the 35-37.5 hours per week that were becoming the norm even in the 1990s.  This means the hourly rate in fact falls by an eighth, over what it would have been.  Many jobs now include a caveat about the need for evening and weekend working, effectively a get-out clause to compel you to work, in fact, any hours the employer deems necessary.  Of course, we have to accept such conditions because the alternative is unemployment with a low level of benefits. 

On one hand, advertising and social pressure encourages us to consume and aspire to better items and owning our own houses.  However, with incomes falling this becomes even more of a fantasy than ever.  The only item of clothing I have purchased in the last 18 months was a £14 pair of shoes from Asda to wear to interviews and this was only because there was a hole in the sole of my other pair that let in water no matter how much cardboard I put in the bottom.  How can I aspire even to buy some new clothes let alone think about a new car or a holiday or a new mobile phone?  I have had to leave the house I owned to return to the rental sector because I cannot pay a mortgage and am likely never to be able to do so again; meaning my poverty when I retire is now guaranteed. I am not a person without qualifications.  I got a degree when only 6% of the population attended university.  I have years of experience and professional training.  What hope is there for people with less than that?

I have noted before how that UK society seems to be being pushed to resemble ever more that of the USA.  The cutting back of the National Health Service is moving us in the opposite direction to what the Obama administration is seeking to do with health care and more towards the kind of privatised health system that his Republican opponents vigorously insist on.  We also seem to be moving very rapidly towards having the 'working poor' forming a significant part of our society.  In the USA working poor are defined as being people who have worked at least 27 weeks of the year but whose income falls below the poverty level.  In the USA in 2005, 2.8 million families (made up of 12.2 million people) had a household income of 100% less than the poverty level; in addition, 9.6 million families with work, about 29% of them, were earning 200% less than the poverty level, a level at which they are deemed not to be self-sufficient of welfare or charity.  To give you an idea of the level, self-sufficiency was deemed to be an annual family income of US$39,942 (currently equivalent to £25,120) for a family of four. 

In the EU poverty-in-work is defined as being 60% of the median, not mean, income.  In the UK, median income for men in 2010 was £538 and for women £439, thus poverty is earning less than £322 per week if you are a man and less than £263 per week if you are a woman.  Being paid £322 is equivalent to £16,700 per year.  Thus, the office manager job discussed above, means that your pay is at poverty levels, if you are man, until you rise £4,000 above the basic level.  By definition, all the workers you manage will be in poverty and remain in it in that position.  In 2010 it was stated that 1.7 million children in poverty in the UK were in families that had work, with 1.1 million in families without work.  There were 2.1 million working families in the working poor category and it was anticipated that 8% of the population, around 4.8 million people, were at risk of falling into this category.  We are not talking about people on benefits or retired, they are further categories of people in poverty, these are people actually in jobs but earning so little that they are deemed to be poor.

There has been rhetoric around the 'squeezed middle' especially from the Labour Party.  However, with a lack of regulation of companies' behaviour and, certainly, no attempt to shift pay levels above the minimum wage, to any higher level, there is no clear idea how they will be able to do anything to alter the situation for ordinary people.  I know Labour would shy away from setting salary levels as it would seem too much like wages and incomes policies of the 1970s, which they now find embarrassing.  Ironically, those policies were to keep down pay rises, whereas now we need to see pay rising.  Raising the threshold at which you pay tax is one approach, one favoured by the Liberal Democrats before they went into government.  However, to a great degree this takes pressure off employers who can continue to pay low salaries to everyone (except the top executives, of course).  I have outlined an idea of having the highest salary in a company always kept to a certain ratio to the lowest and I believe that, without at least indications of minimum expected salaries right up the structure of companies, then you will never eliminate the tendency in the UK for pay to pushed downwards for most workers whilst it rises inexorably for the already wealthy. 

You could argue that leading economies need cheap labour to prosper and this is one reason why China is booming at present, as, for every high-earning fashion company executive in Shanghai there are thousands, probably tens of thousands of very low-paid textile workers.  Before the minimum wage was introduced to the UK in 1999, there were complaints from companies and the Conservative Party that it would lead to job losses.  However, this never appeared and this is for a number of reasons.  One is the large profit margins that so many companies maintain selling or providing services in the UK.  Another is that the pay of high executives is so high that even cutting it back by a few percent frees up sufficient funds to pay a lot of low-paid staff.  Another reason is that paying decent pay levels benefits the economy.  Anyone who lived in a poor area, as I did in 1999 in East London, noticed immediately how small businesses benefited from the minimum wage.  Some people saw their weekly pay almost double and they went out and spent it on the basic things that they had previously gone without.  There are a lot of low paid people so a change in their income makes a bigger impact than shifting that of the far fewer high-paid people: there are only so many white goods you can fit, even in a mansion, and only so many meals you can eat.  I certainly believe that the UK's supermarket chains would not have prospered to the extent that they have done if the minimum wage had not been introduced.

There seems to be a lack of basic knowledge in government about how a capitalist economy works.  The UK economy was at its strongest, not in the 1920s and 1930s, times of high unemployment and low wages, but in the 1950s and 1960s with periods of very low unemployment and rising incomes.  The UK economy will continue to be weak now, as long as the numbers of working poor remains high and, especially, as it rises.  These people will lack the ability to consume the products that keep so much of our extensive service sector running.  Of course, the UK does not manufacture much these days and imports large quantities of food, but even selling foreign goods keeps companies like Tesco, one of the cornerstones of the UK economy, thriving and, in turn, employing more people.

Poverty makes people desperate, they are far more likely to become corrupt or steal from their employers.  You can see this in countries with capitalism but a great disparity between rich and poor.  Try travelling on public transport in India or Tunisia or seeking planning permission in many South American states.  The UK has corruption, but generally in the public-facing civil service and most companies, it is very limited.  However, if you increase the number of people in work who cannot afford to live even a meagre life, then you are driving them towards corruption.  Countries like China deal with it by having a harsh, totalitarian police state.  You might think this would be an option for the UK, but interestingly, the Conservatives, to their credit, have begun to reverse the assault on human rights that was seen under the Blair and Brown governments and, ironically, to compel cutbacks in police numbers. Thus, the UK will have an economic pattern that promotes corruption but does not have the police strength to suppress it.

I believe that the current governement's stance is to encourage cheap, malleable labour of the kind employers of the 19th century could draw upon and dispose of at will.  I quite anticipate that characteristics of 19th century employment, such as tied accommodation, even live-in servants, will begin to re-appear.  I have already noted that dated modes of living such as lodging are on the increase once more.  You may contest that Cameron and his gang have any intention of retro-engineering UK society.  It does not really matter if you accept it or not.  What is more crucial is that, if the numbers of working poor continue to rise, then domestic consumption will be pitiful and the UK will be condemned to a weak economy into the coming decades.  Capitalism works on the basis of supply and demand, if you choke off demand as poverty does, then the cycle begins to break down and small numbers of ultra-wealthy people have far less impact than millions of comfortably well-off ones.

The 10p Tax Band

Last year, the then Chancellor of the Exchequer Gordon Brown, the man who is now the UK's prime minister announced the abolition of the 10% tax band (it is called the 10p band as you pay 10p (pence) in every £1 that you earn within that band, which is 10%), this abolition is now coming into force and 70 Labour MPs were threatening to vote against the application of the move but have been bought off with concessions on benefits for low earners in terms of fuel and other expenses. Before I launch into why the abolition is so wrong, a quick recap on the British tax system. Basically anything you currently earn up to £5,435 (€7065; US$10870) you pay no tax on. For earnings from £5,436-£7,755 you pay 10%; for £7,755-£36,000 you pay 22% (though only 20% on savings earning this much) and for everything over £36,000 you pay 40%. Remember that the average salary in the UK is £24,400 and 80% of the population earn that amount or less.

The average wage for people working for Tesco, the UK's largest (and richest) supermarket chain was £11,594; it employs 260,000 people in the UK and is the largest non-public employer. Remember too that if the top 1000 richest people in the UK actually paid the amount of tax they are supposed to then the government could reduce the 22% tax band to 17% and still receive the same income. Obviously the 10% band benefits all taxpayers in the UK, but it is disproportionately beneficial to the 6 million people (20% of the workforce) in the UK who earn less than £10,000 (€13000; US$26000) per year.

It is astounding how many websites you see praising the multi-millionaires and conversely saying that the reason why so many people earn less than £10,000 a year is because they are simply lazy and that if they tried they could earn a lot more. Do you really think people like being poor? There are some lazy people, but the majority of people work hard. Do you think those who turn in long hours and multiple shifts working in Tesco stores or petrol stations or factories are lazy? Of course many of the people who earn these salaries work part-time, most typically so they can raise children or look after elderly relatives, taking a burden off the state for which they are not paid. Most poor people work far harder than the rich and yet they continue to be abused. I thought this attitude had died with the 1980s but researching this posting I found that unfortunately it is still all too prevalent. It reminds me of the lyric from the The's 'Infected' album the track 'The Mercy Beat' has the line 'everybody can be a millionaire so everyone has to try'. Of course 99% of the population want to be millionaires and in 2007 there were 471,500 businesses started in the UK alone up from 457,200 in 2006. So there are literally hundreds of thousands of people every year trying to become a success and given that in September 2007 in the UK 835,800 people were claiming jobseekers' allowance for being unemployed, this is equivalent to every one in two unemployed people trying to get a business going. Of course many of these businesses are started by people in work, but many must begin to draw in unemployed people too. Of course setting up a business does not earn you big money, in the UK in 2007 75% of entrepreneurs were making £20,000 or less (so below the average annual salary) and 49% of the total were making £10,000 or less (so in fact would have been better off getting a job at Tesco rather than setting up their own business). Britain is a low salary economy and it is going to get harder to raise yourself out of that rut. Last year it was reported that 100% of the income of new house mortgage holders earning the average annual salary noted above, goes on household expenditure: mortgage, council tax, utility bills the report did not even include food or petrol. Prices in these areas (bar the mortgage at present) continue to rise far slower than salaries so there is no capacity for savings or even disposable income. It is sickening to see people claim that those on low incomes are lazy, in fact the bulk of them are working extremely hard to keep their heads above water. It is not about effort it is about the huge imbalance in British society which has been widening further since the 1970s. The super-rich are in control and making us subsidise their lifestyles. That is simply perverse.

In total 1% of the population owns 34% of the wealth in the UK. The head of Barclays Bank earns £250,000 per year and gets £22 million per year in bonuses; the founder of moneysupermarket.com earned £103 million in a year. You could employ 10,300 people (the number of people that Tesco employs in Northern Ireland) earning £10,000 per year for a year for the same amount of money, is he really worth that much? To the 3 million people who earn more than £100,000 per year a loss of about £230 per year is not going to mean much with the abandonment of the 10% bracket, but for those under £10,000 it can cover the cost of your fuel bill for half the year or your food for a family for a month, it is a big difference. This change will also hit women, who make up more of the workforce, harder as on average they earn 17% of the salary of their male counterparts but remain predominantly the breadwinner in single-parent families, which helps explain why children are over-represented among those people deemed as being in poverty in the UK.

Brown has won over the Labour rebels by promises of compensation for the poorest. Yet, that is not the same as maintaining the 10p tax band. Compensation means control and as I have long stated on this blog this Labour government seeks ever greater control. Everyone is affected by a tax band when they earn sufficient income to enter it, but only people who are targeted or have the time and ability to apply get compensation. This allows the government, as it clearly wishes, to designate money to those it sees as the 'deserving poor' (to use the Victorian phrase) and keep it away from the 'undeserving poor' for whatever reason because of their lifestyle or the choices they make. The government will be equipped with yet another tool to shape people's lives, to go into particular jobs or move to particular areas with the carrot of being offered this compensation or the stick of having it removed if they do not comply. This comes at a time when food and fuel prices are continuing to rise seemingly inexorably (my own grocery bill has risen by 20% in the past year despite growing vegetables in this household to supplement the food we buy) and you are lucky if your salary has risen by 3% when fuel is rising 11% per year at present. This is another step by the government to increase its police state powers.

I am not averse to taxation. I believe people in my income bracket should pay more and should fund better services out of that. In fact I believe in more taxation, but rather than doing what the government is currently doing, i.e. raising taxes for the poorest people in society, I would raise them for the very rich. Back in 1979 the pattern of taxation was very different. That June, the first budget under the Conservatives the basic rate (currently 22%) was lowered from 33% to 30% and the top rate (currently 40%) fell from 83% to 60%. There were very rich people, lots of millionaires in the UK of 1979 and even the Conservatives could stomach such rates of tax which are not exceptional. France has a top tax bracket of 52.75%; Germany 42%. However there is a shift in all of Europe to lower tax rates in the highest category. This is because governments really no longer have any control over their fiscal policies, they are dictated to by the turbo rich who threaten governments into passing policies which favour them otherwise they threaten to take their money elsewhere. Across Europe they are bullying governments into reducing the burden on them and not even properly collecting the taxes that they should be paying. An increase say to 45% for people earning over £100,000 per year and 50% for those over £250,000 would make minimal difference to those earning such large sums but would immediately increase the revenue coming in.

Maybe it is too late. Perhaps Brown is afraid that if he challenges the ultra-rich his government will be brought down by a flood of funds from the UK. These people seem not even to tolerate even minor amendments which in reality they would not even notice. Their agenda seems to move to something like 18th century France where the nobility was exempt for taxation whereas the lowliest peasants had to contribute to the extravagance of the royal court. Of course Brown has a desire for compensation in the place of a lower tax band, not only does it keep the ultra-rich happy but it gives him more control over the masses. How is it that discredited political stances discredited two hundred years ago seem so suitable for present day UK politicians? Brown you are a coward, a bully and seeking to head an authoritarian state. Listen to the backbenchers and change your ways before you wreck British society.