Freezing or reducing the minimum wage would be economically wrong-headed

So there are rumblings that the government is planning to freeze or perhaps even reduce the minimum wage for those over 21 years of age. This would be completely wrong-headed for at least three reasons.

Most importantly it is simply not fair to penalise those who earn the least (which by definition are those earning the national minimum wage). They are the so called "strivers" that George Osborne keeps banging on about. Surely this government should want to protect them rather than see their real-terms salary fall?

But if that's too wishy-washy namby-pamby sandal-eating muesli-wearing for you then here are a couple of economic reasons for you.

If salaries are reduced then benefit claims will increase. The government will simply be shifting the burden from the private sector to the taxpayer and hence helping to further subsidise companies that should be paying their staff more not less. If anything this will make the deficit even worse.

Also those earning the least are the most likely to spend what they get. This is exactly what you need to boost growth and hence the mooted policy is the exact opposite of what the country requires.

I hope this is just bank-holiday flag flying. I also hope that Lib Dem ministers will have nothing to do with this mean-spirited and economically dubious nonsense.

Raising the income tax threshold - great news!

According to reports, George Osborne is likely to raise the threshold at which people start to pay income by £1000 to £7,475. This is apparently to be paid for by clawing it back from top-rate taxpayers. I am am not clear on exactly how this second part will work but if this is correct then I think it is excellent news.

Firstly it is the beginning of an implementation of the Lib Dem policy to take everyone earning less than £10,000 per year out of income tax. It gets us over a quarter of the way to realising this aim. It is also something I think we can genuinely point at at say that it is unlikely to have happened had we not been in the government.

Secondly it will offset the likely rise in VAT to 20% for the poorest earning families. If a 2.5% hike in VAT is going to cost the average family £389 ((c) 2010 Lib Dem election campaign) then surely it will cost the average lower earning families proportionally less. I do not have the exact figures but I would expect it will be a net gain to those earning the lowest amounts.

Don't get me wrong, I still don't think raising VAT is the right move but at least its effect will be mitigated for some of the most vulnerable.

Of course we hit the problem of what happens to those who do not earn anything at all but I await to see what is in the budget overall before passing comment on that.