Credit: Garry Knight

Corbyn's living wage folly

The leader of the opposition suggests banning firms from paying dividends if they don't adopt the living wage.

by Adam Gale
Last Updated: 01 Apr 2016

The days of New Labour politicians schmoozing with business leaders at Downing Street cocktail receptions seem like a very long time ago indeed. New(ish) opposition leader Jeremy Corbyn has nailed his colours firmly to the mast when it comes to his business policies – and they are all shades of red.

First there was people’s QE (essentially printing money to pay for public investments, as opposed to printing money to prevent economic collapse), and now there’s his idea to ‘bar or restrict companies from distributing dividends until they pay all their workers the living wage’. Apparently no one told him that this isn't the Soviet Union in 1950. 

This is just an idea rather than a firm policy proposal, it should be pointed out, but that won’t make business feel much better about it. There are a couple of problems with this idea, you see.

For a start, if government wants to increase the minimum wage, it should do just that, rather than interfering in the relationship between businesses and their shareholders. Penalising firms for not following a voluntary arrangement will just drive them to find loopholes to avoid the penalty. These could involve exotic tax arrangements via Luxembourgeois subsidiaries, or investing more in capital (think job-pinching robots) to keep labour costs down.

If it does turn into a minimum wage hike (from £6.70 now to the Living Wage Foundation's £8.25, and £9.40 for London), then British competitiveness will likely take a hit. The end result would likely be much the same – higher unemployment. At the same time, shareholders worried about their dividends would presumably be more likely to pull their investment and take it to a foreign company that’s not burdened by such rules.

Having higher wages for the lowest paid isn’t necessarily a bad thing for the economy of course, and having a minimum wage hasn't harmed the economy as some once predicted it would. But a substantial increase mandated from above, however disguised, would have serious and uneven consequences. Without a corresponding increase in productivity, it’s hard to see most of those being positive.

Still, it probably makes more sense than sending out multi-billion dollar Trident nuclear submarines without any missiles in them. Perhaps Corbyn should discuss his policies with other people before he starts making speeches?

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