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From International Socialism (1st series), No.59, June 1973, pp.1415.
Transcribed & marked up by by Einde O’Callaghan for ETOL.
A wage increase of 10 per cent is not adequate to compensate for a similar rise in the retail price index for three main reasons:
We shall consider each of these effects in turn and then summarise the total effect. Obviously the three factors operate very differently on different people. For the sake of definiteness the case of an employed man with a wholly dependent wife and two children under 11, at various income levels is taken. A calculation for this typical family will produce a more meaningful result than an ‘average’ which would be distorted by the presence of small numbers of highly atypical cases (millionaire bachelors for example!)
Table A 


(1) Weekly 
Tax paid 
Total N.I. 
(2) Takehome 
% increases in 
£20 
£1.27 
£1.41 
£18.22 
14.2 
£30 
£4.28 
£1.86 
£24.76 
12.8 
£40 
£7.30 
£2.35 
£31.25 
12.1 
Three major items have to be considered here: family allowance, rent rebates, and family income supplement,
Table B 


Weekly earnings 

£20 
£30 
£40 
% increase in earnings 



Note 2. If you receive a rent rebate, then Note 1 about the marginal rate of tax must be revised. The marginal rate becomes 34.80% + 17% =51.80% and we have £1/(1  51.80 per cent) = £2.08, so to increase your net income by £1 you must win a £2.08 increase in earnings.)
(Note 3. If you receive FIS as well as a rent rebate your marginal rate of ‘tax’ becomes 51.80 per cent plus 50 per cent (rate of loss of FIS) – a total of 101 per cent. So if you get a £1 increase in pay your net income ends up about 2p less than it was before! Fortunately this effect only occurs over a short range as entitlement to FIS soon vanishes.
To carry this out properly would be a formidable task both in terms of the data required and in terms of the complexity of the calculation. We have taken into account only the major factor – housing. Housing costs consistently rise faster than other prices, when the retail price index goes up by 10 points the cost of housing goes up by 15 points (this ratio has been fairly consistent over the last 10 years and during the recent period). In the calculation of the r.p.i., housing is weighted as 12 per cent of total family expenditure. While this figure is average for families on £40 a week, for families on £20 and £30 the weight should be 18 per cent and 14 per cent respectively. (Source Social Trends. Central Statistical Office, 1972, various tables on page 100.) Correcting for this we find that a 10 per cent rise in the r.p.i. means a 12 percent rise in the actual cost of living for a family on £20 a week and an 11 per cent rise for a family on £30 a week. So the corresponding entries in the tables must be increased by the factors 12/10 and 11/10 respectively.
For our ‘typical family’ of a couple with two children under 11, living in rented accommodation, with the man the sole breadwinner we have:
Table C 


Man earning per week gross: 

£20 
£30 
£40 
Rise in actual cost of living 




Necessary pay increase to produce 




Necessary pay increase allowing 




Allowing for loss of FIS benefits 
over 40% 

Note: In fact the last entry is rarely applicable since only a small proportion of the families entitled to FIS benefits are thought to be receiving them. In comparison with these figures it should be noted that the Tory ceiling of £1 plus 4 per cent corresponds to a rise of 9 per cent at £20, 7.3 per cent at £30, and 6.5 per cent at £40.
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