Summer Budget 2015: National Living Wage introduced
Chancellor George Osborne has announced a compulsory National Living Wage (NLW) of £9 an hour from 2020 for workers aged over 25.
Osborne said the initiative would lift the wages of the lowest paid to ensure workers can "take a greater share of gains from growth".
Currently one-in-five UK workers is considered low paid, compared to an average one-in-six among OECD countries.
From April next year the NLW will be set at £7.20 – 70p above the current National Minimum Wage and 50p above the increase in the minimum wage due to come into effect in October 2015.
The government will also consult with the Low Pay Commission to see how the NLW can reach 60% of median earnings by 2020. This will enable the NLW to reach its target of £9 an hour over the next five years.
It is expected that this will mean a boost in earnings for 2.7million low-paid workers and by the end of this parliament it is expected that an individual aged over 25, working 35 hours a week and previously earning the National Minimum Wage will see their pre-tax earnings rise by a third – equivalent to an additional £2,000 a year or £4,000 for couples.
The increase will bring minimum earnings to just below the UK Living Wage of £7.85 an hour or £9.15 in London as calculated by The Living Wage Campaign. The campaign was launched in 2001 by parents in London who were frustrated that working on two minimum wage jobs left no time for family life.
However while the increase is undoubtedly great news for workers, Colin Morton, lead manager of the Franklin UK Equity Income Fund, said it could pose problems for business.
"The new living wage, while a triumph for workers, will also pose problems for the retail and leisure industries which have traditionally paid their employees minimum wage as a matter of course.
"It will be interesting to see how the bigger brands adapt and amend their practices under this increased pressure and scrutiny. On the flip side, we could see a recycling of cash back into their pockets as consumers now look set to have more money in their pockets and thus more money to spend."
However, chancellor George Osborne said: "The Office for Budget Responsibility estimates that the cost to business will amount to just 1% of corporate profits. To help small firms I will cut their national insurance contributions.
"From 2016 our new Employment Allowance, will now be increased by 50% to £3,000. That means a firm will be able to employ four people full time on the new National Living Wage and pay no national insurance at all."
Office for Budget Responsibility
Formed in May 2010, the OBR makes an independent assessment of the public finances and the economy, the public sector balance sheet and the long-term sustainability of the public finances. The OBR has four man priorities: to produce two forecasts a year for the economy and public finances, to judge the progress the government has made towards meetings its fiscal targets, to assess the long-term sustainability of the public finances and to scrutinise the Treasury’s costing of Budget measures.
The Organisation for Economic Cooperation and Development was established in 1961 to promote policies that will improve the economic and social wellbeing of people around the world. It uses a broad range of economic information and research to help governments foster prosperity and fight poverty through economic growth and financial stability and also ensure the environmental implications of economic and social development are taken into account. It can only make recommendations and has no powers of legislation; nor can it compel members to adopt any recommendation. Based in Paris, the OECD currently has 34 members, including the UK.
A scheme originally established in 1944 to provide protection against sickness and unemployment as well as helping fund the National Health Service (NHS) and state benefits. NI contributions are compulsory and based on a person’s earnings above a certain threshold. There are several classes of NI, but which one an individual pays depends on whether they are employed, self-employed, unemployed or an employer. Payment of Class 1 contributions by employees gives them entitlement to the basic state pension, the additional state pension, jobseeker’s allowance, employment and support allowance, maternity allowance and bereavement benefits. From April 2016, to qualify for the full state pension, individuals will need 35 years’ of NI contributions.