Second Budget 2015: the National Living Wage

July 9, 2015

A key measure in the Chancellor’s Budget was the introduction of a National Living Wage, meaning businesses will pay a minimum of £9 per hour by 2020.

The current national minimum wage (NMW) stands at £6.50 per hour for workers over the age of 21. On top of this, the new living wage will be introduced as a ‘premium’ in April 2016 at £7.20 per hour for those aged 25 and over.

Any workers under the age of 25 will still only qualify for the NMW, which the Government says is necessary to allow younger workers to ‘secure work and gain experience’.

One controversial aspect of the change is that the Office for Budget Responsibility (OBR) predicts approximately 60,000 job losses as businesses struggle to meet the living wage.

Chancellor George Osborne was keen to point out, however, that all the measures contained within this Budget would promote the creation of 1.1 million jobs – outweighing the short-term losses.

Cuts to corporation tax, which will be reduced to 18% by 2020, are expected to offset the additional costs to employers. Small firms will also benefit from a 50% increase in the Employment Allowance, allowing them a £3,000 exemption from national insurance.

Mr Osborne said: ‘That means a firm will be able to employ four people full time on the new National Living Wage and pay no national insurance at all’.

The Government’s Low Pay Commission will be tasked with deciding how the National Living Wage will reach the £9 target and further changes beyond 2020.

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