Low-pay benefits subsidise cowboy bosses, says Labour

The number of low-paid families drawing state benefits is rocketing and will cost employees the equivalent of 2p on income tax over the next five years, according to Labour Party analysis of official figures.

Based on statistics produced by the House of Commons library, Labour points out that "in-work" payments are expected to total pounds 21.9bn in the years to 2001 - costing a typical family pounds 260 a year in tax.

Using Government figures, Ian McCartney, Labour's chief employment spokesman, show-ed that the proportion of families drawing family credit had jumped in virtually every area of the country by between 20 and 50 per cent in two years. In some parts of Britain the percentage had doubled.

Having attempted to awaken the conscience of the electorate in support of a statutory minimum wage, Labour yesterday appealed to its wallet.

Mr McCartney said Labour would make the introduction of the minimum wage a priority. "We will ensure that taxpayers' money is used to get people back to work, not thrown away by subsidising cowboy bosses."

While the Government emphasises the burden on companies of a statutory minimum pay rate, Labour has attracted increasing support from em-ployers on the basis thattheir tax is subsidising competitors who pay their staff less. The analysis by Mr McCartney denotes a significant shift in the party's argument for raising the wages of the poorest workers.

Mr McCartney's assertions, however, also reveal that Labour has little intention of conceding to the unions' demands for a minimum wage of pounds 4 an hour or more.

In a statement the employment spokesman points out that 342,000 workers earn less than pounds 1.50 an hour and that two million were paid less than pounds 2 an hour. It is increasingly clear that a future Blair administration will be thinking in terms of a minimum near the pounds 3 mark, which most experts predict will have a minimal impact on employment.

The House of Commons library found that over the past five years the average real growth of in-work benefits has been 14 per cent a year. Mr McCartney says that continued growth at the same rate would mean that by2000 low pay would cost the taxpayer pounds 5.8bn a year.

He pointed out that "inadequate" pay which has to be topped up by benefits funded by the taxpayer was often used by unscrupulous employers to minimise costs and undercut their competitors.

Mr McCartney said: "The Government's failure to tackle poverty pay could cost families across Britain pounds 1,300 each in the `Tory low-pay tax' over the next five years."

He said it was disgraceful that while the Government had allowed some privatised utilities to pay little or no tax since privatisation, it was prepared to burden taxpayers with an extra 2p in the pound levy to support `Scrooge' employers.

"Benefits have an important part to play in helping people into work, but without a minimum wage the system is wide open to abuse. A national minimum wage would help the low paid and prevent cowboy employers using low pay to undercut to their competitors, leaving the taxpayer to pick up the tab."

Labour plans to set up a low pay commission, made up of employers, unions and independent representatives, to advise the Government on the level of the minimum rate.