So, Ed Miliband wants to raise the minimum wage over the course of the next Parliament from £6.50 which is due to take effect in October to £8 an hour.
This is a remarkably easy vote winning strategy for a Labour leader to throw out there, but he needs to understand the reality of what he’s doing because somebody has to pay.
Let me take an example of somebody I know who runs a takeaway and fast food restaurant, he employs around 40 staff, working seasonal and shift patterns to deal with demand. Most are young people, working in their first jobs, in an area where work is quite hard to come by.
Raising their wages from £6.50 an hour to 8 pounds an hour over a 40 hour week is an increase of £60 per person per week or £3000 a year (Labours calculations). With 40 staff that’s nearly £12,000 per month that will now have to be found by the owner of that business.
He only has two options that are viable from a business perspective, either he can raise prices which therefore impacts on everybody who buys food in his takeaway, or he reduces the number of staff to cover the cost of this new wage rate.
The Labour leader seems to miss this simple fact that businesses are not social activities but need to deliver a return for the people who created the investments to make them happen in the first place. There is no way that the owner of this business can face a cut of £120,000 in his profit over the course of the year in order to subsidise labour votes.
Such a policy will only result in increased prices or more unemployment and demonstrates the folly of buying votes.
Given that prices rises are not welcome by the customers the chances are that some staff will be laid off. And if you reverse the maths the current minimum wage gives an annual salary of circa £14,000, which means that 8 jobs are at risk in order to balance the books.