Government strengthens employer subsidy

That nice man, Ian Duncan-Smith, has announced government plans to withhold working tax credits from low-paid workers who go on strike. He says: "It is totally wrong that the current benefit system compensates workers and tops up their income when they go on strike. This is unfair to taxpayers and creates perverse incentives."

The implication is that the low-paid are encouraged to withdraw their labour because there is no financial downside. "Striking is a choice, and in future benefit claimants will have to pay the price for that choice, as under universal credit, we no longer will." There is, of course, absolutely no evidence that the low-paid are strike-happy. The loss of earnings while on strike will be greater than the top-ups in almost all cases, so the claim that there is an incentive is specious. Industrial action has always been more prevalent among better-paid, skilled workers who tend to be more unionised and less easily replaceable. The low-paid are often the most reluctant to strike as they have little leverage and no financial resilience.

The ideological bent of this announcement is indicated by the use of the terms "incentive" and "choice". IDS's contention that strikers will have to "pay the price for that choice" paints them as rational actors, weighing up the marginal utility of strike action in much the same way that they would weigh up the purchase of a new pair of shoes. This ignores the reality that most strike action is defensive and reactive in nature, prompted by employer initiatives such as cuts in real wages and lay-offs. Workers don't go on strike because they're bored.

Working tax credits exist to top up the wages of the low-paid who would otherwise be in working poverty. They have the effect of being a "perverse incentive" for employers to pay close to the minimum wage for low-skill jobs, as they know the state will make up the difference between that and a living wage. The state is thereby "topping up" the income of the employer every working day. They also perversely insulate employers from the effects of low productivity, which means they effectively undermine capital investment. Falling productivity is offset by falling real wages, which are in turn subsidised by tax credits.

The Tory proposal is not going to lead to mass starvation. The tax credit top-ups are small beer in relative terms and the number of low-paid workers that will be affected (and can afford to strike) is tiny. The significance is the ideological message that underpins this "mean-spirited" gesture. This is part of the wider programme to shift welfare from universal entitlement (a right) to personal eligibility (a reciprocal obligation).

As we saw with the threat of benefit withdrawal for the unemployed who refused unpaid work experience, the approach is inevitably prescriptive: thou shalt and thou shalt not. Your behaviour is the issue, not the lack of jobs or the prevalence of low pay. We already know the Mandatory Work Activity programme doesn't actually work, in terms of getting people into jobs, but this isn't going to cause a rethink. This latest initiative doesn't even bother to claim a desirable outcome for the affected. The ostensible goal is to protect the interests of taxpayers, a body that IDS seems to assume does not include workers on low pay.

The irony is that a party that has traditionally privileged the private over the public has found itself advocating increasing scrutiny of, and interference in, the private lives of the people. Your demand on the public purse will be judged as being worthy or unworthy based on your private behaviour, not on your social circumstances. Withdrawing your labour, which is a private contractual dispute with your employer, will result in a public penalty.

There is an argument to be made that the state should never subsidise employment, that it should always allow the labour market to achieve equilibrium, but this means it shouldn't pay working tax credits or similar subsidies under any circumstances, nor should it countenance a minimum wage. The Tories are not proposing this yet, but that leaves them arguing a case that is hypocritical. Employers who pay crap wages will continue to be subsidised, and now their employees are further discouraged from striking over pay. Meanwhile the private behaviour of the unemployed and low-paid will be subject to ever more humiliating inspection.