On the proposed NMW increase

In an interview with the BBC yesterday George Osborne said that he would like to see above inflation increases in the National Minimum Wage (NMW), potentially increasing the rate for those aged 21 and over to £7/hour. Whether this was a pre-emptive strike or a panicky reaction ahead of Millipede Jr’s speech on the cost of living today is left up to the reader to decide based on their own particular biases.

The bare numbers (courtesy of Listen to Taxman) for someone doing a 37.5 hour week in the 2013/14 tax year are as follows:

£6.31/hour £7.00/hour £ Change % Change
Gross Pay 12,304.50 13,650.00 1,345,50 10.94
Income Tax 572.90 842.00 269.10 46.97
Employee National Insurance 546.78 708.24 161.46 29.53
Employer National Insurance 635.97 821.65 185.68 29.20
Nett Pay 11,184.82 12,099.76 914.94 8.18

Increasing the NMW to £7 would (in this tax year) make the employee £914.94 better off, the government £616.24 better off and the employer £1,531.18 worse off.*

Yet increasing the thresholds for Income Tax and all types of National Insurance to £12,304.50 would leave the employee with an extra £1,119.68 in their pocket, the employer with £635.97 per employee to spend on something else and a reduction in the amount taken by government of £1,755.65 – which would no doubt be offset by a reduction in the need to hand out quite so much in in-work benefits (and, potentially, reduce the admin overheads involved).

Not that it will happen though.

*Obviously this assumes that nobody loses their jobs because their labour isn’t worth the increased amount because at that point the employee and the government are both worse off…


  1. Bunny says:

    The trouble is that the politicians don’t think that way, if you reduced the tax burden on employees the low waged would be better off and British goods would be cheaper. I don’t mean the £200 a year tinkering but a wholesale slashing of taxation with the provisions such as benefits provided for by individual savings accounts. The medical service provision as in Europe, using insurance policies, take the politics and bureaucracy out of it. Unfortunately you are right there are far too many vested interests involved for this to happen.

    • Misanthrope Girl says:

      Indeed. Just look at the hysterical reactions to the idea of introducing market reforms to the woefully under-performing NHS – apparently becoming more like France (hardly a beacon of red-blooded capitalism) is wholesale privatisation…

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  3. Martha says:

    But if the low paid employee has children they will lose a big amount of tax credits so they won’t really be 914.94 better off and the government will benefit by more than the 616.24

    • Misanthrope Girl says:

      That’s an argument against high marginal withdrawal rates on various benefits (which are, I agree, horrendous), not lower taxes on the lowest paid.