Posts tagged ‘NMW’

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?

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?