Will the real Howard Flight please stand up?

Prompted by this article by Howard Flight on ConservativeHome advocating a higher minimum wage, I made a search of that website for other articles by him making significant points on the desirability, or otherwise, of a minimum wage, including its impact on productivity.

I did that because I was curious that a – as I see him – relatively right-wing commentator was apparently in favour of not only a minimum wage, but a higher one, when I (someone who is to the left of the Conservative & Unionist Party and to the right of Jeremy Corbyn) am not wholly persuaded that a minimum wage is the best way to enhance the income of the low paid: I wonder if a negative income tax – or the similar tax credits introduced by Gordon Brown – might be better. I want something done to improve the lot of the lower paid (and those unable to work), but I have no ideological preference for any particular way to do that. I do, however, suspect that the current enthusiasm for minimum wages on both the left and right of the United Kingdom political spectrum might partly be because it’s easier to persuade the electorate to vote for employers paying more to their employees than to vote for money being transferred – via taxation and negative income tax or tax credits – partly from voting taxpayers.

(I note in passing that two economists who Margaret Thatcher was reputed to be rather fond of were in favour of negative income tax or minimum income: Milton Friedman, albeit in his case some brief internet searching suggests that he was reluctant about negative income tax and may later have changed his mind, and from Wikpedia I learn that “In his 1994 “autobiographical dialog,” classical liberal Friedrich Hayek stated: “I have always said that I am in favor of a minimum income for every person in the country” … Hayek on Hayek: An Autobiographical Dialogue by F. A. Hayek, edited by Stephen Kresge and Leif Wenar (Chicago: University of Chicago Press, 1994)”.)

But I digress. I was intrigued to find that Howard Flight’s policy recommendations seemed to have shifted more than somewhat between 2009 and 2017. Moreover, as far as I can see (I am not an economist) the reason he gives for now having a higher minimum wage – that as a by-product it should increase productivity – also applied between 2009 and 2015. I believe his points on ConservativeHome about minimum wages can be summarised as: in 2009, 2014 and 2015 he thought the Minimum Wage was a necessary evil (not his words – my summary of his arguments); in 2010 it was “economically wrong”; also in 2014 as I understand it he wanted both tax credits and the minimum wage abolished. In particular, in August.2010 he appeared to be arguing for a lower or zero minimum wage: “faced with the growing competition from Asia, the minimum wage is now pricing large numbers of people out of work”.

His first mentions of the effect of a minimum wage on productivity seem to be in August.2016 and December.2016, when we are told that the increases in the minimum wage should stimulate an increase in productivity, at the cost of pricing some people out of work. Finally, in the current article of June.2017 is: “Here, there is a strong case for a significantly higher minimum wage, which should have the by-product effect of increasing productivity”. What I’d like to know is if that’s true now and in 2016, but apparently not true – in his opinion – from 2009 to 2015, what were the differences in economics and politics between 2009-2015 and 2016-2017 which led to him changing his mind?

Below are verbatim extracts from the relevant articles by Howard Flight on ConservativeHome. I have tried to avoid quoting out of context, which is why some extracts are longish. I believe that I have not misrepresented him, but am willing to consider including longer extracts and/or extracts from his other articles on ConservativeHome if anyone provides reasoned arguments showing that I have.

  • 15.October.2009: The Conservative Party needs a manifesto to promote growth in the private sector … In an economic climate where the key objective must be the creation of new jobs in the private sector, it is demonstrable that the Minimum Wage reduces potential employment and thus serves to increase the welfare expenditure bill. Labour’s introduction of employment tax credits makes it difficult not to have some level of minimum wage as otherwise employers would be incentivised to cut their labour costs further, and exploit the tax credit top up. …

  • 31.March.2010: [Labour Party Government budget] Darling’s last stand – The Budgetary challenges bequeathed by the Chancellor to the next Conservative government … Increasing the minimum wage by 2.2% – albeit economically wrong – will be welcome to low income earners. …

  • 16.August.2010: Growing the (Private Sector) Economy John Llewellyn and Bimal Dharmasena have written an interesting CPS Paper reviewing what Government could do to create the conditions which will lead to an increase in the UK long term growth rate. As it points out, avoiding bad policies is as important as promoting good policies – particularly relevant with regard to taxation. While the political reasons for apportioning the restoration of sound public finances at around 33% increased tax and 67% cutting or freezing expenditure, are readily understood, it is also clear from an economic standpoint that an approach of 100% (or even 120%) cuts and no tax increases (or a reduction in tax) would be better for encouraging economic recovery. Their proposals for labour market reforms are broadly sensible but they duck the crucial issues that in work tax credits are a major disincentive for individuals to increase their skills, where for the majority the differential in post tax-credit take home pay is small as between the more skilled and the less skilled: and, secondly, that faced with the growing competition from Asia, the minimum wage is now pricing large numbers of people out of work. …

  • 22.January.2014: The cost of the EU … Tax credits and the minimum wage … Back in 1974, the Heath Government sought to introduce a negative income tax regime, essentially similar to the tax credits introduced by Chancellor Brown. The leading Labour politicians then argued, convincingly, against a negative income tax on the grounds that it would lead to the suppression of natural pay increases and end up costing a fortune, much as had the “Speenhamland” system in the early 19th Century. This is precisely what has happened. I argued against Tax Credits being introduced at the time, quoting the well-considered opposition of previous Labour politicians back in 1974 to the negative income tax proposals.

    Not surprisingly, the Government is now considering increasing the minimum wage to try to offset the effect of tax credits in holding down pay and so ballooning their costs. This would, however, represent little more than a sticking plaster measure. The tax credits regime needs to be abolished, to allow wages to reach their natural, market levels, with compensation where required via the welfare payment reforms.

    In the wake of the 2008/09 financial and economic crisis, it may have been a good thing, in the short term, that tax credits suppressed wages, thus enabling employment levels to hold up; but in the longer term, wages need to be driven by market forces, and individuals need to see that if they improve their skills, their take home pay increases. Moreover, the sort of massive subsidisation of employment which Tax Credits represents leads, inevitably, to over-employment in many areas and a fall in productivity growth, (as occurred with the Speenhamland system) as we have seen over the last 5 years. Hiking the minimum wage by Government dictate may reduce the current costs of tax credits, but will also serve to price unskilled employees out of work.

  • 8.June.2015: What must be done now that we’ve won … Now is also the time to take measures to increase the savings rate. This is necessary both in order to help those under 60 to provide more adequately for their retirement years, and also to correct our economic imbalance – illustrated particularly by the ballooning current account deficit. There is a limit to the assets which can sensibly be sold to foreigners to finance it without this leading to strategic problems. A higher level of saving would also underpin a higher level of investment, and in turn productivity growth. Iain Duncan-Smith’s welfare reforms have clearly made work pay with dramatic success, but subsidies for those in work are also a major cause of holding down wages, sector over-employment and poor productivity growth. I remain of the view that the income tax credit element of Universal Credit should be phased out. It is having the same effect as what was known as the Speenhamland System in the early part of the nineteenth century. …

  • 3.August.2015: The stealth taxes in Osborne’s latest Budget would have made Gordon Brown proud … Many have criticised the increased minimum wage – now termed the National Living Wage (NLW). I do not like Governments interfering in pay, especially where growing regional differences in the cost of living should allow pay rates to be determined locally. But where Government (the taxpayer) continues to subsidise pay – outdoor relief as it used to be known – an adequate minimum wage cannot be avoided, in order to stop employers constraining pay deliberately and optimising the government subsidy. The cost of in-work tax credits has increased from around £8 billion to over £30 billion per annum over the last decade. …

  • 28.March.2016: We simply cannot afford to carry on protecting spending on welfare, the NHS and schools … Iain Duncan Smith’s commitment to get people into work is to be praised and has protected large numbers of people from being thrown out of work post the financial crisis. But, looking forward, taxpayer subsidy of those in work has to be phased out. It serves to put downward pressure on pay and encourage over-employment – a major cause of poor British productivity. It is a nonsense that many working 16 hours a week and receiving substantial income tax credits enjoy a similar overall income to many working 40 hours a week. The Universal Credit is a good idea from an administrative perspective, but I believe that the Income Tax Credit element needs to be phased out. …

  • 1.August.2016: Conundrums of economic policy in the wake of Brexit … This, in turn, raises the issue of productivity. The reason why productivity growth has been negative is that there has not been an increase in GDP matching the two million increase in those in employment. As Alastair Darling has pointed out, Labour’s working tax credits have served to put downward pressure on wages (why should employers pay up if tax credits are subsidising employment), in turn encouraging ‘labour hoarding’ when labour costs are cheap. The inevitable result is a fall in productivity. Arguably, the Universal Credit will also increase the downward pressure on pay. The coming increase in the minimum wage should serve to address this issue, but at the cost of pricing some people out of employment altogether. … Finally, I would advise the new Government against socialist-leaning Government sponsored measures, intended to address perceived inequalities and perceived market failure. These are inevitably costly, and often have unexpected outcomes. [Added to emphasise how little advice Theresa May’s Government seems to be taking from Howard Flight: whether that is or is not a wise position is another question.]

  • 5.December.2016 We are spending too much on health, education and welfare … The higher minimum wage should stimulate an improvement in productivity, although it will also price many out of work. …

  • 26.June.2017: The Government must tackle Britain’s low productivity … An important factor restraining capital investment is relatively cheap UK labour costs. As Alistair Darling, the former Labour Chancellor, has conceded, Labour’s tax credits, intended to raise living standards, have largely had the effect of reducing pay. Why should the employer increase pay when the Government will pay up? With labour relatively cheap to the employer, many businesses have more staff than they really need, and as an alternative to capital investment. It is interesting to note that poor British productivity has coincided with the introduction of tax credits: when we finally got back to pre-crash GDP in 2015/16, it was with some two million more in employment – productivity had fallen. Here, there is a strong case for a significantly higher minimum wage, which should have the by-product effect of increasing productivity. Businesses will not employ more people than they need and will look at investment as an alternative. …

About Colin Bartlett

I'm interested in arts, mathematics, science. Suliram is a partial conflation of the names of three good actors: Ira Aldridge, Anna May Wong, and another. My intention is to use a personal experience of arts to make some points, but without being too "me me me" about it. And to follow Strunk's Elements of Style. Except that I won't always "be definite": I prefer Niels Bohr's precept that you shouldn't write clearer than you think.
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