Posts tagged ‘National Minimum 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.

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…

That 10% tax band proposal

The members of what passes for the Labour Party’s Brains Trust (no laughing, please) have finally, possibly, maybe, made some marks on that blank piece of paper and come up with a policy. Not a new one though but a rehash of an old one: a 10%* tax rate.

The details provided are sketchy but the press is reporting that it would apply to the first £1,000 of taxable income, in contrast to the previous incarnation which applied to the first £2,500.

However, whilst I am very much in favour of governments stealing less money, this ‘policy’ is about as pointless as when Millipede Sr and Dave Prentis called for the Living Wage.

As a result of this policy, basic rate taxpayers** would retain an extra £100 of their salary each year. Oh, be still my grateful heart!

The current government, as useless as they are, have raised the personal allowance (PA) from £6,475 in 2010/11 to £9,205 in 2013/14 – an Income Tax (IT) reduction for basic rate taxpayers of £546 a year.

Raising the PA to £12,070.50 (37.5 hr week at the National Minimum Wage) would save everyone a further £573.10 in IT alone.

Sorry Eds but this policy can only be described in one way: #fail.

* Or 35% once National Insurance is factored in.

** No doubt the threshold for the 40% IT band would be reduced by £1,000 at the same time.

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.

More NMW Thoughts

Following on from the government’s (now launched) scheme to bribe employers into taking on unemployed youngsters, the Welsh ‘government’ – in an effort not to be out done – has gone one step further and will subsidise the entire cost of employing someone under 24 for a period of 6 months:

The Jobs Growth Wales programme commences in April 2012 and will create 4,000 jobs a year for job ready young people throughout Wales. The programme will cater for young people that are job ready but have had difficulty securing employment. Participants will be paid at or above the national minimum wage for a minimum of 25 hours per week. Young people will be employed for the duration of the programme and the jobs created must be additional to, and not replace, positions that would otherwise be filled.

Whilst some may no doubt see it as admirable that the State has stepped in to cover the cost of employing people who have otherwise been unable to get a job, my reactions can be summed up thusly:

  1. By insisting on these being new jobs, the tax payer is going to be subsiding jobs in the private sector that probably otherwise wouldn’t exist. Are we going to find ourselves with a glut of experienced paperclip shufflers from October onwards?
  2. By subsidising the entire cost, the Welsh ‘government’ appears to be saying that the actual value of the labour involved – and thus the value of the job done – is zero.
  3. This is further proof – as if it were needed – that the rate of the National Minimum Wage (£6.08 for those over 21) is far too high and that people (and the private sector) in Wales would clearly benefit from it being (if it is to continue to exist) set at a rate more commensurate with the costs of the local area.

Further food for thought comes in the shape of potential legal action from those who are 25 and over on the grounds of discrimination.

Does anyone, outside of the most deluded, still think that government interference is a) properly thought through and b) in any way useful?

That budget then

So, George Osborne has delivered this year’s budget – or, more accurately, confirmed the press leaks of the last few days. Quite frankly one wonders why he bothered standing up.

I think it is safe to skip rapidly over the growth forecasts provided by the OBR as the record of their gypsy fortune-tellers predictions is poor to say the least.

Equally, the less said about his wish for a balanced economy the better. Wishing for it is fine but I’d be happy if the government kept its paws out of the matter* as much as possible and left it up to the free market to sort out.

Borrowing

As he stated back in the Autumn, the government will continue to live beyond what it steals from the taxpayer past the end of this parliament (assuming it goes the distance). Indeed it doesn’t forecast a ‘balanced’ budget before 2017/18. In the mean time the National Debt is forecast to increase by £126bn (2012/13), £120bn, £98bn, £75bn, £52bn and £21bn (2016/17). That is a whopping £492bn – and all of which may, one day, have to be paid back.

I say one day because as we know the traditional way for government to deal with debt is to inflate it away and in 100 years time it is more than likely that that £492bn will be a lot closer to chump change than it is now. Gideon’s wheeze for delaying the inevitable for as long as possible is 100-year or perhaps even perpetual (i.e. non-repayable) gilts.**

Public Sector

Sadly there was no announcement of an immediate end of national pay bargaining. The Chancellor did though appear to thank the opposition for suggesting the end of national benefit rates – perhaps the only useful idea to emerge from Labour in a while. It would also make sense to make the NMW regionalised (assuming it is politically impossible at present to scrap it entirely).

Taxes

Let’s face it, the only thing anyone really cares about is how much the government is planning on stealing from them in direct taxation each year. The stupidity of it is how pathetically grateful we all get when we learn that it might not be as much as last year… without realising that they generally claw it back through indirect taxation instead.

The apparent good news for anyone earning less than £100k is that the government has decided it won’t start its thieving in the forthcoming tax year until you’ve earnt £8,105 – and next year is pushing that level up £9,205.

Obviously this is a good thing for anyone earning minimum wage sort of levels. Personally I think it would be better if no-one doing a 40hr week at NMW (which currently works out to £12,646.40) paid any tax but things seem to be moving in the right direction. The test will be what happens once the £10k level, as agreed at the start of the collation, is reached.

The likely option is that government of the day will starting treating it just like they do the the other tax thresholds and allow it to increase slower than wages, thus once again catching more people in the net.

What the Chancellor didn’t mention whilst he was crowing about the changes to the 0% band was that the £630 increase there is mirrored by pulling the 40% threshold down by £630, shrinking the 20% band by £1,260. This ensures that – for those under 65 – that the the 40% band still starts at anything over £42,475. This is the same tactic that the one-eyed Scottish idiot employed on a few occasions.

Together with the lack of change of the levels at which the tax free allowance is withdrawn and the highest rate of Income Tax is levied, the government is once again ensuring that, as wages rise, more people are dragged into the higher tax brackets.

Unlikely those of us who are earning to try to keep ourselves in drinking money, those who have reached pensionable age will find their 0% band frozen from 2013. If I am to guess, this is in order to equalise them with the rates for the under 65s in preparation for the merger of Income Tax and National Insurance – something which will also hit pensioners as they do not currently pay NI.

The positive sides of merging IT and NI should be
a) simplification of the tax code, and
b) give the population a better idea of what the basic rate of tax (excluding Employer’s NI) is.

With any luck, being told that the basic rate is actually over 30% (rather than the 20% they believe) may result in the sheeple demanding that it comes down…

For those on very high incomes, the semi-good news is that the highest rate of income tax is coming down. Not yet scrapped altogether (hopefully in a future budget) but being halved. Given the flagrant avoidance that took place before the 50% rate come into effect – and which will be duplicated now as people who can hold off until 2013 – this can only be a good thing. Will 45p in the pound (and the potential direction of travel) tempt those who haven’t yet upped sticks to stay though?

Excellent news for companies employees, shareholders and customers is that corporate tax is coming down even further with the aim of getting it to 22% from 2014. Not quite Ireland but better than France and Germany which may encourage those financial institutions who were thinking of leaving before a Tobin tax in introduced in those places. The increase in the bank levy may however put them off.

The so-called sin taxes generally slipped by without change to already announced increases except for the price a tobacco***. I imagine that the only people who were cheering this rise of inflation plus 5% (plus consultation on making tobacco-free cigarettes liable to excise duty) were the smugglers. As a non-smoker I would be open to the idea of bringing back duty-free smokes for people when re-entering the country…

Regulation

As trailed, Sunday trading laws are to be relaxed during the Olympics. Hopefully they will then be scrapped altogether as an anachronism.

Planning – perhaps the major reason for the cost of housing being so high – is being simplified. Supposedly the guidance is being cut to just 5% of its previous size although there is no word of whether part of this has been achieved by the use of single instead of double line spacing and a reduced font size.

We are also getting more ‘enterprise zones’. Why not just make the entire country one?

And Michael ‘Tarzan’ Heseltine is back. Has anyone checked him for knives?

Infrastructure

It would seem that the Government has finally realised that we do need more (or bigger) airports. Will Heathrow be getting that third runway after all? We might find out come the summer.

Annoyingly (but not surprisingly) the Government will continue to waste money on ‘green’ energy but in better news looks to be reversing the hit it gave the North Sea oil and gas industry last year.

Conclusion

One thing that this is not is a Libertarian budget. Government spending is still going up and Peter, let alone Paul, is being robbed to pay Peter.

To the laywoman (i.e. me) it appears to be yet another budget that just tinkers with things whilst fleecing the public for more money – a speciality which Gordon Brown perfected. There is however some future potential in it if some things (the IT and NI merger, national pay bargaining) do happen. To mis-quote that school report line no-one ever wanted to see: “could do a damn sight better”.

* Yeah, I know. Government leaving alone is wishful thinking, huh? Let’s just be thankful he isn’t attempting to plan the economy.

** It is ideas like this which make me glad that I’m never going to have children.

*** Ok, gambling as well as tax will be imposed at point of consumption in an effort to stop online gambling moving offshore.

Thoughts on the National Minimum Wage

According to news today, the Deputy Prime Minister Nick Clegg is to offer bribes subsidies to employers of up to £2,275 to employ some of the estimated 1.163 millions young people not in education, employment or training (NEETs).

Doing some back of a fag-paper calculations using a 40 hour week for 52 weeks a year (a total of 2080 hours) as a guideline:

Age Group 18 – 20 21+
National Minimum Wage (NMW) (£) 4.98 6.08
Yearly Wage (£) 10,358.40 12,646.40
Employers NI (£)* 453.52 769.27
Total Cost to Employer (Year) (£) 10,811.92 13,415.67
Total Cost to Employer (Hour) (£) 5.20 6.45
6 Month Cost (£) 5,405.96 6,707.84
6 Month Cost after subsidy (£) 3,130.96 4,4323.84
Hourly Wage after subsidy (£) 3.01 4.26
Difference between pre and post subsidy Hourly Wage (£) 2.19 2.19
Percentage of pre subsidy wage (%) 42.12 33.95
Percentage of post subsidy wage (%) 72.75 51.41

* Figures obtained via Listen to taxman

If the government is having to subsidise employment for some people by at least a third, the only logical conculsion surely is that the NMW is too high?