Living salaries

20 July 2013
I was recently reading Henry Hazlitt book on economics, which in itself is pretty much a collection of essays on why government is merely an inefficient wealth transfer system, and one of the points it made was related to why both the minimum wage and the maximum working week were a bad things. While I think these points are are ones that have more to do with being a purist than practicalities, it does bring up the point about how much someone should be expected to work to survive. As a follow-up, I decided to look up what the UK living wage was, because for all its socialist-minded leanings, its calculation at least made proper assumptions such as how many hours people should work to survive. It also has a fairly good go at estimating how much living actually costs.

My interest is how much of this cost is merely cost of government, as opposed to actual cost of living. According to the Minimum Income Standard calculator, based on some fairly general parameters (mainly to do with family and benefits, both of which are irrelevant in my case), my personal living wage is £16,852. Of course this is really a salary of £18,116 if you include the padding-out of Employer NIC (National Insurance Contribution), which works out at £348.30 per week. Since this living wage calculation uses per-week itemisation, I will use weekly costs for further calculations.

Next, the deductions

Of course, as well as all the HMRC erosion of the base-line employer cost, the weekly outgoings themselves contain hidden sales taxes, so it is only fair to strip them out as well:

Alcohol: £2.24: Don't ask why alcohol is included as part of the living wage, but since it is and it is heavily taxed, it is only fair to account for this tax. CAMRA estimates that 42.6% of a pint is tax, so that works out as £2.24.
Council tax: £14.47: £14.47 per week works out at £752.44 per year, so it is pretty obvious they assumed a band A property. My most recent council tax bill was almost double that, but I will go with MIS's quoted price. In any case, the whole lot is tax.
Energy: £0.93: Energy has VAT at 8%, so subtract that.
Motoring taxes: £13.72: I think £22.86 is an unrealistic figure for travel, but I will take it as face value as spend on petrol. Petrol is about 60% tax.
VAT: £28.11: The remaining £168.68 is all om things that I believe attract VAT at 20%, which back-calculating means another £28.11 heading for government coffers.

I'm not sure whether I've got all the taxes in there, but I am pretty confident that the sum figure of £59.47 is at least ball-park. I'm sure if you dig deeper there are other hidden costs of government, but the above is bad enough for now.

Living expenditure: £11,148.28

Subtract all the deductions and actual weekly expenditure without all the government garnishing comes to £214.39. That means the amount of money actually needed to survive is £11,148.28, the rest just being the cost of government. In other words when a company employs someone at a supposedly subsistence salary, 38.5% of the money they pony up one way or another is absorbed by government. One interesting point is that £11,148.28 is not that far off how much someone working 40 hours a week on the UK minimum wage gets as a gross salary.

Minimum wage really a minimum?

A final point is the extent that government undermine their own case for having a minimum wage in the first place, and that case is based on it being the smallest amount of money someone needs to survive. If a full-time job is assumed, then the minimum wage is clearly flawed, because the fact that some of the resultant salary is taxed is admission by government that the earner does not actually need all the salary to survive. Therefore minimum wage levels, regardless of whether one believes the concept as a whole is right, are arbitary.