Posts tagged ‘Living Wage’

National Minimum Wage v’s Living Wage (2015 Edition)

So the Living Wage folks yesterday told us that for 2015 the Living Wage (outside of London) is £7.85/hour.

Running the numbers and comparing them to the National Minimum Wage (NMW) of £6.50/hour we get the following:

NMW LW
Gross Pay (£) 12,675.00 15,307.50
Income Tax (£) 535.00 1,061.50
Employee’s National Insurance (£) 566.28 882.18
Employer’s National Insurance (£) 651.22 1014.51
Nett Pay (£) 11,573.72 13,363.82

The difference between the Nett LW and the Gross NMW is £688.82 per annum. Over a year (52 x 37.5 hour weeks = 1950 hours) that is an extra 35p per hour – or £1 less than the LW.

Raise the NMW wage to £6.85/hour, the starting rates of Income Tax and National Insurance to £12,675 and, hey presto, we have the so-called Living Wage.

Simples.

National Minimum Wage v’s Living Wage

The National Minimum Wage (NMW) is back in the news with Millipede Sr and UNISON boss Dave Prentis calling in yesterday’s Observer for it be raised to match the ‘Living Wage’ (LW) rate of £7.20 (or £8.30 in London) an hour.

As Tim Worstall pointed out once again yesterday, this could be achieved just as easily as not taxing anyone doing a full-time job at NMW rate for those over 21 (currently £6.19/hour).

The figures (courtesy of Listen to Taxman) for someone doing a 37.5 hour week in the 2012/13 tax year are as follows:

NMW LW
Gross Pay (£) 12,070.50 14,040.00
Income Tax (£) 793.10 1,187.00
National Insurance (£) 537.42 773.76
Nett Pay (£) 10,739.98 12,079.24

As can be seen the difference between gross income at NMW and nett income at LW is all of £8.74 (less then a half a penny an hour) and this figure will no doubt be even lower in the 2013/14 tax year once the 0% Income Tax (IT) band rises to £9,205.

Raising this threshold, as well as those for National Insurance (NI), to £12,070.50 would hand every employee on the NMW an automatic pay rise of £1,330.52 without costing their employers a penny. Sure, it would cost the treasury the same amount (more once employer’s NI is taken into account) but I suspect that that can be offset against the reduction in tax-credits.

Upping the NMW to match the LW however would mean that the treasury steals an extra £901.23 (£393.10 in Income Tax, £236.34 in employee’s National Insurance and £271.79 in employer’s National Insurance) per employee.

As someone who would rather the government had less revenue to waste, the former strikes me as the more sensible approach.

It also means that private sector employment in those areas of the country where the median wage is less than the UK median (generally everywhere outside of the big cities and their suburbs) should not continue to suffer at the expense of public sector employment.

It would, of course, make more sense if (whilst we have them) the NMW and LW wage as well as public sector salaries were set on a more local basis given that the cost of living varies across the country. We already have this working in London in the form of the ‘London Weighting’* so why not for those outside of the suburbs?

UPDATE: Millipede Jr has said he’d like to see the LW set at £7.45. Using the same methodology as above the figures come out as:

  • Gross – £14,527.50
  • IT – £1,284.50
  • NI – £832.26
  • Nett – £12,410.74

The difference between the nett figure here and the gross at NMW is £340.24 – or approximately 17.5p per hour.

* Somewhat of a misnomer I feel as it was (when my mum was based there) being paid to those working for local government in Basildon. Basildon, for those fortunate enough to have never heard of it, is a 1960s new town outside of the M25 and about 30 miles from the eastern edge of the City.