The Chancellor of the Exchequer has confirmed an increase to the national living wage and significant tax rises in his Autumn Statement today.
Jeremy Hunt confirmed that the national living wage for those aged 23 and over will increase 9.7% from £9.50 to £10.42 an hour from April 2023, which he said was the “biggest ever increase in the minimum wage”.
The represents an annual pay rise worth over £1,600 to a full time worker, he said, and would benefit two million low-paid workers.
The new rates were recommended by the Low Pay Commission. Its chair, Bryan Sanderson, said:
“The rates announced today include the largest increase to the NLW since its introduction in 2016 and will provide a much-needed pay increase to millions of low-paid workers across the UK, all of whom will be feeling the effects of a sharply rising cost of living. For a full-time worker, today’s increase means nearly £150 more per month.
“The tightness of the labour market and historically high vacancy rates give us confidence that the economy will be able to absorb these increases. Businesses also have to navigate these economically uncertain times and by ensuring we remain on the path to achieve our 2024 target, employers will have greater certainty over the forward path.”
BrightHR CEO Alan Price said HR and payroll teams should communicate the change with their employees, and recognised the new rate might not be enough for some low-paid workers as costs rise.
“Whilst the increase is welcome news for employees, many will still struggle as inflation and the cost-of-living continues to put pressure on household incomes. As such, employers should ensure there is wider support in place to facilitate positive financial wellbeing,” he said.
“Similarly, increased wage bills may cause concern for employers who are facing soaring expenses in all parts of their business. This could lead to tough decisions and the need for organisational changes. Where this is this case, employers must make sure they follow fair processes and consult fully with their workforce.”
Some organisations might struggle to afford an increase to their pay bill, said Paul Farrer, chairman at recruitment agency Aspire.
“While the increase to the national living wage is essential for the lowest paid workers, it’s a double-edged sword. Many small businesses facing crippling energy costs will struggle to meet the 9.7% increase in wages. Some are hanging on as it is, so being expected to pay employees more could be the final straw,” he said.
Increase in taxation
Taxes as a proportion of the UK’s national income will rise by over 1% over the next five years, Hunt said. This would include lowering the salary threshold at which people pay the top rate of income tax (45p per pound) from £150,000 to £125,140, and freezing other thresholds at which people start paying certain tax rates.
This would mean those earning £150,000 or more would contribute an additional £12,000 in tax per year, he said.
Hunt said the government wanted to deliver “low taxes and sound money”, but this was a longer-term goal in the current environment of rising inflation and living costs. Therefore, it was necessary to “ask those with more to contribute more”.
April 2023 national living wage
He claimed the Office for Budget Responsibility had said unemployment would be lower as a result of the measures announced today, saving around 70,000 jobs.
The chancellor also announced numerous measures to deliver a “high wage, high skill economy that leads to long term prosperity”.
He said he was concerned about the economic inactivity rate, and said the prime minister had asked the work and pensions secretary to commission a thorough review into barriers holding back workforce participation, to be published in early 2023.
An additional 600,000 people on Universal Credit would be asked to meet with Department for Work and Pensions work coaches to consider how they could increase increase their working hours.
“The Department for Work and Pensions has a critical role in supporting people into work and I’m proud to live in a country with one of the most comprehensive safety nets in the world,” he said, but added that economic inactivity was a concern.
Hunt also acknowledged workforce shortages in the NHS and said the Department for Health and Social Care and the NHS would publish an independently-verified plan outlining the number of health staff it is predicted to need in five and 10 years’ time.
“We want Scandinavian quality with Singaporean efficiency”, he said of the NHS, adding that this does not mean overstretched workers will have to do more. There will be a review into how local NHS boards operate.
Other announcements included:
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- Freezing employer national insurance contributions until April 2028, and maintaining the £40,000 employers’ allowance
- introducing lower company car tax rates for electric vehicles, as electric vehicles in general would no longer be tax exempt
- proceeding with the business rates reevaluation process from April 2023, with two-thirds of businesses not seeing an increase next year
- commissoning a review into the UK’s skills implementation programme to ensure school leavers have the skills employers require