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Rise in National Living Wage Affects Us All

The government wants the United Kingdom to move away from being a low wage, high tax, high welfare society and become a country which offers higher wages, lower taxes, but where there are fewer people receiving state benefits.
 
The first step towards achieving this ambitious goal happens this April ,when the government introduce a new mandatory national living wage (NLW) for workers aged 25 and above. This minimum wage will initially be set at £7.20 – a rise of 50p from the current national minimum wage (NMW) rate. For a full-time worker being paid the current NMW, this will mean an increase of around £900 per year. This is the first step in a phase of increases with the target of the total wage reaching 60% of median earnings by 2020, at that point it is expected that a NMW worker will earn over £4,800 more per annum.*
 
The government hopes that the new minimum higher wage will demonstrate that work pays and encourage more people to enter into employment. In turn this will reduce reliance on the state to top up wages through the benefits system.

So how does the new national minimum wage affect us all?

 
For those on a low income, or currently in receipt of benefits but unable to afford to work, the rise in national minimum wage is good news as it means the potential to earn more money.
 
Whilst the long-term goal is for everyone to pay lower taxes, there will inevitably be a period of pain before gain, and it is employers who will have to initially bear the brunt of these new costs. Employers will not just have to fund an increase in wages, it could also mean higher pension and employee benefit costs, as staff income tiers rise. We could also see that minimum wage employees are paid a salary which is equivalent to more skilled or experienced workers on older contracts. In order to keep good staff, wages for all workers may have to rise. Company profits will bear the brunt of these increases and for smaller businesses, company directors may have to take a cut in salary.
 
Unless of course, employers pass on higher staffing costs to the consumer by increasing the price of their products and services, and this is how the new national minimum wage is likely to affect us all.
 
If you are a company director and in need of financial advice for either your business or personal needs, please speak to your Wealth Planner or email us at letstalk@sanlam.co.uk

* Source: https://www.gov.uk/government/publications/national-living-wage-nlw/national-living-wage-nlw
 

Date Issued: 26.2.16

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