Minimum wage set to rise in October 2015 and then rise again

25 Aug

The current National Minimum Wage (NMW) for a person who is 21 years and over will rise from £6.50 an hour to £6.70 on 1 October 2015.

The rate for the 18-to-20-year-olds will increase from £5.13 an hour to £5.30 and for the 16-to-17-year-olds from £3.79 to £3.87.

In his July 2015 budget, Chancellor George Osborne announced that the new national minimum wage for working people aged 25 years and over will rise to £7.20 an hour.  There is discussion about a National Living Wage (NLW) with the Low Pay Commission (LPC) set to recommend future uplifts.   The government aims to set the rate at £9.00 an hour by 2020.

Mr Osborne stated that the Office for Business Responsibility (OBR) claimed that the NLW would have only a “fractional” negative effect on jobs, with 60,000 fewer posts available as a result but almost one million will be created.   The OBR estimates that the cost to business will amount to 1% of profits.  To offset that cost, the government is cutting corporation tax from 20% to 19% in 2017 and 18% in 2020.  Smaller firms will benefit from a cut in their national insurance contributions. 

However, Mr Mark Beatson, chief economist for the Chartered Institute of Personnel and Development (CIPD), said that while the OBR claims the NLW would have little net effect on employment, its forecasts relied on assumptions about future productivity growth that were proved wrong to date.   “This policy will deliver higher pay without significant job losses only if it is accompanied by a drive to increase productivity in low-paid sectors such as retail, hairdressing, hospitality and the care sector – and that will need more than delivery of apprenticeship numbers or employment subsidies via the national insurance contributions system,” he observed.

Mr Osborne said that from 2016, the new Employment Allowance would be increased by 50% to £3,000.  “This means that a firm will be able to employ four people full-time on the new NLW and pay no national insurance at all.”

Public sector pay awards will continue to be 1% per year for the next four years, something that has not been welcomed by the unions.  However, Mr Osborne confirmed that the personal income tax allowance would increase to £11,000 with plans to raise this to £12,500 by 2020.   The higher rate income tax threshold would also rise to £43,000.

The government published a new remit for the LPC, which will be required to set the NLW in a way that reflects the growth of median earnings.  The government has asked the LPC to set out how it could reach 60% of median earnings by 2020.   The LPC’s remit in relation to the NMW will now apply only to those over the age of 25.

The current UK Living Wage set by the Living Wage Foundation is £7.85. The rate in London is already £9.15.

Meanwhile, apprentices who are 19 years of age or over and in the first year of apprenticeship and currently receiving £2.73 an hour will have this increased from 1 October 2015 to £3.30 an hour.  After 12 months, adult apprentices are entitled to the NMW for their age-group.   The new NLW for all workers over 25 years of age will not apply to apprentices.

Commentary

While the public has broadly welcomed the Chancellor’s proposals on raising the NMW and the personal income allowance before taxing earners, employers have not been happy bunnies.  In an attempt to soothe their troubled nerves, the Chancellor is lowering corporation tax from 2016 from 20% to 19%.

With regard to apprentices, Mr David Hughes, chief executive of the adult education body, the National Institute of Adult and Continuing Education (NIACE), expressed a measure of concern about the chasm that exists between the wages/salaries of full-time workers and apprentices.  However, he said: “The key issue is making sure employers properly value apprentices and give a fair experience.  Pay is an important part of the programme being attractive to people but not the only part; quality has to be included.”

Ms Alison Fuller, professor of vocational education and work at University College London (UCL) Institute of Education, was more scathing.  She published a report in June 2015, Does apprenticeship work for adults, calling for a radical rethink of the way the government uses the term, “apprenticeship” to avoid its becoming devalued.

Professor Fuller told the TES: “The government will argue that in order to offset training costs, apprentices should be paid less.  It all depends on the deal the apprentice is getting.  If they can see that they are forgoing wages in the short term for gains in the long term, there is less concern for them. But if they can’t necessarily see how the apprenticeships are going to help them develop strong platforms for progression and they feel that they are just doing jobs from Day 1, I can see tensions creeping in.”

There has been an increase in the number of schools employing apprentices. Governors and headteachers may wish to heed Professor Fuller’s advice.  There is, also, nothing to stop governors from paying apprentices over the odds, subject to good financial management and budget availability.

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