National Living Wage – What do you need to know about it?
A new National Living Wage (NLW) is being introduced from April 2016. During his budget announcement, George Osborne explained that the NLW will be compulsory, and the government aims at reaching an NLW of £9 an hour by the year 2020. Here is an insight into the details of the new National Living Wage:
1. Step by Step Process
The new living wage will be introduced in stages, and the first increase will take place in April 2016. The living wages will increase from £6.50 to £7.20 an hour. The increase is likely to benefit almost 2.7 million low-wage workers.
2. You must be 25 years old or more
The National Living Wage will be paid over and above the National Minimum Wage. Individuals aged under 25 will continue to be paid the minimum wages while those over 25 will be able to claim the benefits of the National Living Wage.
The government explains that the lower wage applies to people under 25 so that they can secure a job and gain experience.
3. Does it affect the jobs?
The government predicts that the change in the National Living Wage ensures 60,000 fewer jobs but will gradually result on almost one million more jobs overweighing the losses in the long run. This is based on the prediction of the Office for Budget Responsibility (OBR) that businesses may find themselves negatively affected by the increase in the living wages.
4. Efforts to help Small and Large Firms
The government plans to reduce corporation tax to 19% in 2017 and 18% in 2020 to offset the costs. In addition to this, small firms will get help in the form of new Employment Allowance rate which will be increased by 50% to £3000.
5. Reason for the New National Living Wage
The introduction of the National Living Wage has happened because people in the UK are on a lower pay compared to those in other advanced economies. The new living wage should be able to strike a balance and reduce the number of low pay workers in the UK.
With over 2.5 million low paid workers being able to benefit from the new living wages, the people are hoping for the National Living Wage to have a positive impact. A hike in the minimum wages can entail higher productivity from the workers. In addition to this, firms may be encouraged to invest more in order to cover the costs of the increased wages.
The worrisome facts are that the National Living Wage may not be able to increase the earnings as much as the benefits that are being cut. This can cause unrest among people. So for the National Living Wage to work for the Chancellor, the income, as well as the productivity, should get a noticeable boost to keep the employee and the employer going. There are hardly any economies which have brought such a huge change in the National Living Wages before, if this is successful, the George Osborne may turn triumphant by 2020.