National Living Wage

Berwick-Upon-Tweed Bay, December 2007.

The national living wage for people over 20 is going up by 50p an hour from next April, that’s a 4.1% increase. According to the office of national statistics, the average working week is 36.5 hours. So, that’s an increase of £18.25 a week or £949 a year. A well needed increase for the poorly paid.

Because the personal tax allowance has been frozen (see my previous post). Twenty percent tax is paid on the increase. Six percent national insurance (NI) is also paid. The tax and NI is £246.74. The worker receives £702.26.

Had the allowance been increased by 4.1%, the worker would not have paid any tax on the pay rise. The increase might have been just 2%, more tax would be paid, but not as much as with the frozen allowance.

If someone earning £49,000 receives a pay rise of £949 a year, the increased tax and NI would be the same!

Everyone receiving a pay rise that keeps them below the higher rate tax band loses 0.26% of it. Had the personal allowance not been frozen, the loss would have been less. It would depend on the pay rise and the increase in the personal allowance.

This will continue until 2031.

The employer also pays 15% NI on the £949, which is £142.35. This means the chancellor is getting £389.09 for everyone on the national living wage, it’s also costing the employer £1,091.39.

National Insurance Increase 2024

In the 2024 budget, the chancellor raised the national living wage from £11.44 to £12.21 an hour. An increase of 77 pence per hour, £28.10 a week or £1,461.46 a year.

This took the average yearly pay for someone on the national living wage to £23,174.58.

A big problem last year was the changes that the chancellor made to employers NI. The rate was increased from 13.8% to 15%. The amount at which the rate kicks in was dropped from £9,100 to £5,000. The employer now has to pay NI at 15% on an extra £4,100, £615 (the employer has to find this amount for every employee). The employer also has to pay an extra 1.2% on earnings above £9,100. For £23,174.58 that’s £168.89. The increase in employer NI is £783.89.

The 2024 employers wage and NI increases cost them £2,245.35 per year per worker.

Add in this year’s costs, employers are having to find an extra £3,336.74 for each worker on the national living wage, over the last two years.

Swings and Roundabouts

Clearly, we need to increase the wages for the poor.

We also need to do it in a way that does not push up costs, increase unemployment and drive companies abroad. How this is done is up to the politicians.

Unfortunately, we have a government that has said it will not increase taxes, NI and VAT for workers.

Unfortunately, these need to be increased to spread the cost more evenly. Increasing employer NI, fine, but dropping the rate by £4,100, not at all sure about that.