NAIRU Non-Accelerating Inflation Rate of Unemployment ‘NLW’ ‘National Living Wage’ NMW National Minimum Wage NRO Norfolk Records Office PAC Public Assistance Committee WFTC Working Families Tax Credit WTC Working Tax Credit Summary The summer budget of 2015 announced increases in the National Minimum Wage (NMW) so that by 2020 it will be what is described as a ‘National Living Wage’ (‘NLW’). It also announced significant cuts to wage supplements (Tax Credits and Universal Credit) so that in the future they will be residualised for the very poorest working families and offer significantly less financial support to them. These developments provide an opportune moment to consider wage supplements, in particular whether there is anything that can be gleaned from debates about, and the practice of, supplementing wages in the past that can help inform understandings of wage supplements into the future. Debates about wage supplements have existed for at least two hundred years. During that time wage supplements have been conceptualised as being both deeply problematic and as providing a solution to a range of economic and social problems. The problems that have been associated with wage supplements include: encouraging employers to adopt ‘flexible’ employment practices, for example, employing people on less than full time hours and reducing their wages in the knowledge that the state will top them up; demoralising working people by discouraging them from working long hours and/or working harder to increase their income; the pauperising of working people as a consequence of two issues.
However, the CPRS report did acknowledge that in a newly flexible economy there would be a continuing role for some social welfare protection, but it would have to ‘further the grain of market flexibility.’ In this sense, social welfare interventions would have to work with markets, unlike existing policies, which the analysis of the CPRS suggested, acted against them. It was in this context that the CPRS argued that wage supplements were likely to be crucial in the future: ‘Wage supplements for heads of families in low wage jobs will be an important part of the approach. Only by breaking the linkage in the public mind between low pay and family poverty will the public be brought to accept a substantially larger low wage sector.’ The CPRS was arguing that in the future the available jobs would primarily be low waged and wage supplements would be required to help incentivise – ‘breaking the linkage... between low pay and family poverty’ – people to take them. For the CPRS, however, wage supplements also had the potential to help create employment through diminishing the so-called ‘wage floor.’ Here, the report was concerned with the idea that there appeared for some households to be little difference between benefit income and income derived from wages. The report suggested two ways of dealing with this. First, was the possibility of reducing out-of-work incomes by, for example, holding back the uprating of social assistance benefits for workless people so that it only rose with earnings, or abandoning indexation altogether. Second, the incomes of those people in low wage work could be increased through various measures. These included reducing personal taxation and, more importantly for our purposes, ‘strengthen[ing] the contribution of in-work benefits.’ The report noted that the ‘family wage’ effect of the ‘wage floor’ could be overcome if wage supplements, such as the then FIS, could be made more effective by, for instance, increasing take up and increasing their role in pay bargaining. If, the report argued, “in-work benefit were generally accepted as an earnings subsidy, the gross ‘family wage’ employers would be expected to pay would be reduced to a level below earnings in even the lowest paid jobs.” To do this, FIS would have ‘to become more automatic and to be regarded as part of the wage, [and] it will be necessary to bring employers more fully into its administration.’
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