The proposed National Minimum Wage increase

In an interview with the BBC 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:

image

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…

 


This article was cross posted from Misanthrope Girl’s blog.

4 Comments

  1. People who think that prices (and wages are prices) should be set by government edicts, rather than supply and demand, can not (normally) be reasoned with.

    However, if Mr O. wants to help the low paid he could abolish “National Insurance” which is just a tax for a Ponzi scheme that is bound to collapse – there is no “National Insurance” in New Zealand and income tax and sale tax is also lower there (ditto Australia).

    And-or he could get rid of “VAT” (sales tax – the tax on the poor) completely. It was only introduced in 1973 and does not exist (for example) in Guernsey.

    Pricing people out of work (with edicts trying to rig prices-wages) makes no sense – especially when one is looting the poor with massive “National Insurance” taxes (and the tax on employers is just as much a tax on the poor as the tax on employees – it is all a cost) and a 20% sales tax.

    The key problem is that GOVERNMENT SPENDING is wildly too high.

    I am against all tax increases – but one thing has long bothered me……..

    Why is investment in productive enterprise taxed, but payments on government debt not taxed? They would have to be taxed at SOURCE in order to deal with payments on government debt that go overseas.

    Taxing productive investment, but not taxing payments on government debt creates perverse incentives.

    Of course the ideal solution would be to not tax productive investment.

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    Reply

    1. You have forgotten that VAT was preceded, for 30 years, by Purchase Tax, so in one form or another it’s been around since 1940.

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