Bad News on Redistributing Supermarket Salaries

Zoe Williams's article on top vs. bottom-end supermarket salaries is interesting and full of good intentions, but I fear it doesn't lead us anywhere useful.

Her argument is that supermarkets don't pay their staff a proper wage (perhaps because of in-work state benefits), which allows them to make excessive profits and pay their CEOs an exorbitant salary. To these CEOs she cries out, "To grab so much in excess of what you could ever spend or need, at a cost of so much hardship, to so many people, defies comprehension."

She also gives us lots of handy numbers: the supermarkets' workforce is 900,000-strong, and the CEOs' salaries are as follows:

• Justin King, the CEO of Sainsbury's, receives £3.2m a year;
• Philip Clarke of Tesco, £6.9m;
• Dalton Philips, of Morrisons, £4m;
• Andy Clarke of Asda's pay is not in the public domain.

I'll be generous and assume that Clarke earns as much as the 'market leader', i.e. the Tesco CEO salary of £6.9m. That gives us a total CEO salaries of the big four supermarkets of £21m.

Redistributing that CEO income equally amongst the full supermarket workforce would give each supermarket employee just £23 extra per year. While I don't dispute that Every Little Helps, I'm unconvinced that less than 50p per week would make a significant difference to the lives of ordinary shop-floor workers.

There are serious inequalities in our society which need tackling, but all this focus on people's incomes distracts us from the real source of systemic unfairness - inequality of wealth.

Meanwhile, if we are to aim for high levels of social mobility, then while education and equal opportunities are vital, they are only enablers to the only way social mobility is ultimately achieved - income.

Who's Getting Their Way On Spending Cuts?

Before the general election, all the main parties agreed that the deficit needed to be tackled over the next 5 years. The country couldn't go on spending £1 in every 4 raised just on debt interest.

The IFS scrutinised the deficit reduction plans of the three main parties in the run up to polling day. They calculated that the Conservatives were pledging £96bn of spending cuts by 2015, while the Lib Dems would cut £80bn.

We now know that these two parties would form a Coalition government. In October they announced their Comprehensive Spending Review. Its figures show that the Coalition will cut £81bn from government spending by 2015.

I know my readers are intelligent souls, so I'll leave you to work out whether £81bn is closer to the Lib Dem £80bn or the Tory £96bn.

Let's not forget Labour in this. The IFS calculated they would make £82bn of spending cuts, only the slightest bit different from the Coalition's £81bn. Labour now oppose every single cut the Coalition is making.

Clumsily Progressive Child Benefit Cuts

Remember this chart?

This was from an IFS report from six weeks ago on the distributional effect of the Treasury's deficit reduction programme. It shows that the Government's claim that the impact of the Budget is progressive. With the exception of the households with the 10% biggest incomes, it appears the less you have coming in, the more you will feel the pinch of the austerity measures.

However, take a look at the timescale that this chart: it includes measures announced in the April and June Budgets running all the way until 2014. Later on into this time frame, there will have been several more Budgets that will no doubt include measures that will alter the distributional impact. These are obviously completely unforeseeable - it is impossible to model this impact without a crystal ball.

Helpfully, the same IFS report also contained this graph that only goes up to 2012, a shorter timescale that has less potential to being altered:

To compare apples with apples, focus on the black line - the loss as a proportion of household income. It shows that until 2012, the defect reduction measures are largely proportional, apart from the richest 10% who take a big hit early on. This means that the big hit to poorer households is expected to kick in around 2013 and 2014.

How Child Benefit Fits In

Clearly the allegation that the austerity measures were hitting the poorest hardest has shaken the government. So yesterday we heard that there will be a clampdown on Child Benefit for higher earners. This will undoubtedly hit households at the top end of the household income spectrum, and will have the effect of dragging down the richer deciles on the top graph, giving a more progressive appearance.

That's not to say that the proposal isn't littered with problems. The government has no mandate to be doing this. It clumsily looks at individual rather than household incomes. It means families could be worse off if an earner gets a pay rise that tips them into the upper tax band. It means that money could force an abused partner and their children to remain in a violent household if there is no Child Benefit to survive with if they were to escape. I seriously hope the policy is thoroughly revised before 2013.

But despite all its flaws, the policy shows that the government is attempting to ensure that the relatively wealthy take their fair share of the austerity. I just wish they weren't being so sloppy in doing so. The country needs a government with its head in the right place, not just its heart.

IFS Study Shows What Won't Happen

What matters most in politics - How the decisions made will affect people? Or which parties happen to have announced which policies? If you're the IFS, it seems you think the latter matters more.
The IFS have taken the government's Emergency Budget from June in isolation and shown that the policies announced in it will have a regressive effect on their own.

However, the public won't simply be affected by the June Budget. The previous government also held a Budget just a few months earlier in March. This has two implications:

1. The policy decisions from June weren't made in a vacuum - they were adding upon policies that had just been announced in March. The June Budget did not reverse any of the March Budget, with the one exception of cancelling Cider Duty rises.

2. The impact on people's livelihoods will be total effect of both March's and June's Budgets. The IFS have ignored the impact of March's Budget and only reported on the impact of June's. This is not what is going actually happen to people.

So while this is of little economic relevance, it is more arguably of political relevance. It may tell us about the values of the new coalition government (albeit in a very limited way - see point 1 above). I hope the IFS realises it is engaging in a primarily political debate rather than an economic one.

Worse, by choosing to present the statistics in this way, it is providing ammunition for Labour to use against the Tories and Lib Dems. Given the IFS prides itself on its neutrality, this is a rather surprising decision.

UPDATE 11am: The IFS's report does contain the correct graph that includes the effect of all tax and benefit changes. This is the one that we should be focussed on.

Let me be clear - this is still a regressive picture, and it is not a graph I can take any joy from. It still shows that some of the poorest households will be among the hardest hit. Sadly that is just the nature of benefit cuts - cuts that would have been made whoever was in power. However it does appear that some of the more wealthy, particularly in deciles 7, 8 and 9, will not be feeling their fair share of the pain.

I have redacted my last criticism of the IFS. The full report is far more balanced than I gave the IFS credit for. It is End Child Poverty who have chosen to highlight the misleading graph.