The Blog

Tax Credits Row Obscures a Bleak Future for the Working Poor

For the past week the story of Chancellor George Osborne and his attempt to rein in the tax credit system has filled the comment pages. To some, Osborne is merely trying to reduce an out of control system of benefits introduced by the previous administration. To others, Osborne is a multi-millionaire working as hard as he possibly can to hurt the working poor by reducing their income.

It appears impossible to sit on the fence. Either you hate the proposed reforms or you don't, but it cannot be denied that many working poor will be affected by this proposal. Osborne has vowed to press ahead with his proposed changes despite the welfare bill being defeated in the House of Lords, where they voted for a delay in implementation. The Prime Minister, David Cameron, has even launched a constitutional review to explore the relationship between the Commons and Lords.

But amongst all the political chicanery and constitutional questions, isn't the big picture being missed? It is no longer possible to live in the UK and enjoy a satisfying quality of life on a low-skilled working class wage.

Consider these two facts. When I worked in a supermarket stacking apples in the late 1980s to early 1990s I earned about £4 an hour. Using the Bank of England inflation calculator to project that shelf-stacking pay to now and I would be getting £9.58 an hour. That's even above the present-day living wage for London of £9.15 an hour.

Don't forget, I'm not talking about a well-paid professional job. I was merely stacking apples, collecting trolleys, and sweeping the aisles.

What about property - the cost of owning a home? I bought my first home in 1993. It was a one-bed flat in Walthamstow, East London and I was freshly out of college and in my first graduate-level job. I got £13,000 a year and the flat was £45,000 brand new from the developer.

Look at the multiple to see the affordability. In my first job out of higher education I could afford to buy a home within zone 3 on the tube for less than three and a half times my annual salary. I looked up my old flat on Zoopla to see the present-day estimated price and it is now worth £190,000. The flat next door has an extra bedroom and is estimated at £306,000 so I think my former flat may be worth even more - an extra room is surely not worth another 50%?

Considering these prices and the 3.5 ratio of my 1993 purchase, you would need a basic salary of £55,000 to buy my old flat and the one next door with the extra bedroom would require a basic salary of £88,000. Average UK full-time pay is presently £27,195.

When people talk about the "old days" when the working class could earn enough to enjoy a decent quality of life, it's no lie. I bought a home in London in my early 20s when I got my first professional job. How many graduates can consider this a possibility today?

Global competition for jobs, work moving to people through outsourcing, people moving to jobs through migration, and automation are all creating an environment where low-paid jobs are only propped up by minimum wage legislation. Entire swathes of the British economy, such as catering and hospitality, are now entirely based on minimum wage jobs.

But the future holds only more uncertainty. Google, Apple, and Tesla are all testing self-driving cars. Daimler has demonstrated a self-driving truck on real German roads. Amazon is tearing up the rules of retail. What do all these innovations mean for the future of low-paid driving or shelf stacking jobs?

Oblivion. That's the short answer. But as we argue about tax credits today the world of work is changing so fast that in a decade every working class person in a job not classed as highly skilled may need support from the state.

Is the chancellor planning for this eventually?

In his recent book, Postcapitalism, Paul Mason argues that we need to move to system of basic guaranteed incomes to prevent the working poor slipping into working poverty. I believe Mason is on the right track. How can an entire society create a situation where only those with inherited wealth can afford to own a home and jobs pay so little that it is impossible to survive?

I don't expect Osborne to listen to cries for a guaranteed income, but one day British politicians will need to start listening because the residents of shanty towns in London will have had enough. They will demand a system that lets them work and earn enough to at least have the dignity of food on the table and a roof over their head.