Cutting the minimum wage by 20% but giving low-paid workers a tax break so that they don't lose any actual income sounds somewhat plausible at first but if the aim is to boost employment in low paid sectors it could end up being little more than wishfull thinking.

Some employers may simply decide that 20% cheaper labour costs makes it more economical and practical to make a few staff redundant and increase the now-cheaper working hours of others. Employers will not hire more people than they can use simply because they are a bit cheaper. The effect on unemployment at the bottom end may be insignificant or even negative.

Furthermore, with the government more or less "subsidising employment" in this manner, many employers may decide to use cheaper labour as a personal windfall. Nearly everyone wants more money in their own pocket and employers are certainly no exception. Much of the cost saving may end up being spent on bigger home theatre units and more expensive bathroom fittings in employers homes. Thus, the government may end up not increasing employment but instead subsidising the lifestyles of the better off, something they already do to an unforgivable degree. It could just increase the gap between the haves and have-nots.

I am sceptical of probablity of this significantly reducing unemployment and fear that it may simply work as a blunt tool to transfer more wealth from the poorer to the richer.

What Peter Saunders is proposing, using the welfare system to subsidise inadequate wages, was tried (and failed) in early 19th century Britain (google Speenhamland system). In this case the taxes to support inadequate wages were levied at the local parish level. Market wages promptly fell, as Fozz predicts, because the employers knew that the parish would make up the difference between the wages they paid and what the workers needed to survive. Previously independent workers were drawn into the system because they could not compete with subsidised labour, much as modern workers have trouble competing with 'workfare' clients or illegal immigrants. Social inequality grew, because labourers with a bit of property were forced to sell it and live on the proceeds before they were eligible for the subsidy.

As more and more people were drawn into the system, it became unaffordable. Rates on property were increased to pay for it, while benefits fell. Eventually the wages plus the benefits were worth less than the wages alone before Speenhamland. Small employers were actually worse off, because the cheap labour did not make up for the higher taxes. The only real winners were large scale employers of unskilled labour. Eventually Speenhamland had to be abandoned.

Peter Saunders does have a case so far as the tax system is concerned. There a ridiculously low tax threshold, the lowest rate is high by international standards, and Parliament refuses to consider family responsibilities when taxes are levied. Lower income people are often left with too little income to survive. The government then gives them back some of their own money in the form of a welfare payment - which can be quickly snatched back if they earn a bit more. Effectively, confiscatory taxation is being imposed in the guise of withdrawing a welfare payment.