The British Conservative Government has just declared a remarkable policy interest. It aims to abolish tax credits which support people who are employed by companies at less than the living wage. Though it is yet not clear how the plan will work the Government argues that tax credits, in many cases, arise because otherwise profitable companies are simply not paying enough in wages to some of their employees. Strong stuff. What this means is company employees who are paid below the living wage are entitled to tax credits. The tax credit makes good the difference between what they are actually paid to work and the living wage – a welfare metric based on what people need to receive in order to enjoy a decent living.
Rightly the Conservatives argue that companies should seek to pay their employees a living wage and are committed to bringing this about. The huge subsidy from the taxpayer to the corporate sector is unsustainable. It also a reward for what can only be described as anti social corporate behaviour. The question which then arises is what will cause companies to say – “we must pay more for our labour to diminish the burden that will otherwise fall on taxpayers in the form of tax credits”. This is very big step for some companies to take. It may also have unintended consequences.
In Anglo American jurisdictions, the tax credit issue is a major problem. We need to consider why so many companies exploit the fact that low paid employees can rely on the state to raise their take-home pay to a living wage through tax credits. The business model of successful companies like Walmart explicitly acknowledges and relies on this fact. Many Walmart employees are unable to earn a living wage in a highly profitable company. In order to help these low paid employees Walmart helps employees to attain a living wage by applying for tax credits and other benefits. There is evidence that similar practices also occur in the British grocery sector. The problem is widespread and affects other sectors.
The only way this issue can be successfully addressed is if the boards of companies are structured in a way which ensures that the debate about the living wage takes place. Relying on executive director-dominated unitary boards, common in Anglo American jurisdictions, will not take us forward. Until we adopt independent supervisory boards whose role it is to represent a broad range of stakeholder interests – serious debate about these issues will not take place. This most serious breach of corporate responsibility will continue unchallenged.
Richard Tudway 