‘State-subsidised corporate super-profits’

Zoe Williams has written a very good article in the Guardian which addresses one of the issues of our society ignored by our political class. 

“The first time I heard the phrase "state-subsidised corporate super-profits" was last June, at a conference of the pressure group Compass, in a discussion about meeting child poverty targets by 2020 (the title was intended as a bleak joke, I think). Someone in the audience said that the very existence of "in-work benefits" was evidence of the government subsidising the bloated profits of huge corporations.

This was underlined by the arcane terminology – a "working family tax credit". Why a "tax credit" and not a "benefit"? Clearly, because otherwise some smart-Alec might have said that if a company is paying a worker less than it takes to break through the breadline, and that's legal, then there's something wrong with the minimum wage. However, this was a lefty conference, full of lefties, and this is the sort of thing they say.

The next time I heard it, it was July and a reported observation, specifically about pay in supermarkets, from the editor of MoneyWeek, Merryn Somerset Webb. I don't know her politics, but she was previously a broker at SBC Warburg, she writes for the Spectator, and she is a non-executive director of two investment trusts. You don't meet many people like her at a Compass conference.

Tomorrow, the Fair Pay Network publishes a report on the impact of low pay in national supermarket chains. It looks at the big four supermarkets: Tesco, Sainsbury's, Asda and Morrisons – the largest employer block in the country outside of the NHS. The report finds that the working poor now dominate poverty equations, with nearly two-thirds of children in poverty living in working families. It gives case studies for individual members of the 900,000-strong supermarket workforce: workers such as the mother who has to hold down two part-time jobs, never sees her kids, and still can't afford to use the tube – so they probably end up blowing what quality "me-time" they have schlepping across town on a bus. Life would be untenable for many families without in-work benefits, and even with them it is back-breakingly hard.

Who wins, when the government makes up the shortfall, between the poverty pay a shelf-packer earns and what he or she needs to live on? Not the worker, evidently; not the taxpayer, who may get a certain empathy boost from the fact that nobody's starving, but reaps no economic advantage from this bizarre system; not the supplier to the supermarket, who often has his or her own case to make about deals so bad they often amount to a mugging.

The only winners are the chains themselves: 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. What justifies these amounts? Their profits, of course: well done, guys. You don't pay the London living wage, or the UK living wage (a non-binding rate set by the Centre for Social Policy Research) to your lowest-paid employees. You were abetted in this by the last government, and now have this government, with its soaring unemployment, over a barrel.

You reaped greater profits as a result, which you must now feel free to skim off. 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. It can't be because they want the money; it can only be an urge to compete with their CEO peers. What would be good is if they could divert some of this myopic energy into a more innocuous pastime, like a FTSE 100 squash tournament.

However, CEOs are hard to influence, especially on the matter of their own salaries; a better place to start would be the government. Part of the problem here is that it is typically leftwing to agree with benefits, both from a political, redistributive agenda and as part of a semi-Keynesian programme that it's good for GDP for the poorest to have more money, because they spend a larger proportion of their income, thence pumping it back into the economy.

Meanwhile, on the right, it is typical to disagree with benefits, both from an ideological faith in the individual as master of his own destiny, and from the monetarist position that government spending strangles private enterprise. Clem Chambers espoused this so succinctly in Forbes this week that I almost bought it and had to change my whole identity: "If you subtract state spending from total GDP, then subtract the tax take from what's left and then deduct government borrowings, what remains in most developed countries approaches zero. There is little or no GDP left for the private sector. No wonder there isn't any economic growth."

However, this is a simple chicken-or-egg question: does the size of the public sector suffocate the private sector? Or does the public sector only look big because the private sector is so rubbish?

What nobody in any of these corners would ever advocate is state spending as an alternative to fair wage settlements. The left would say: set a minimum living wage, make it decent, enforce it, unionise. The right would say: let the market determine wages; if people aren't paid enough, they'll stop spending and the supermarkets themselves will realise that boosting pay packets in the middle will yield better profits than one huge pay packet at the top.

Nobody would say: let the supermarkets pay what they like, and so that they never have to deal with the economic consequences of that, let the state make up the difference. Nobody would say that, because it's senseless. And yet, here we are.” Guardian 19/1/12

On the ‘Comment’ pages following the article, Zoe Williams makes the case for ‘organised boycotts’ of these subsidised profiteers. Bring it on.