Budget 2020: National living wage to hit 66% median earnings by 2024

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The Low Pay Commission has been tasked ensuring that the national living wage reaches two-thirds of median earnings by 2024.

Announced in the Budget today, the independent Low Pay Commission has been asked to recommend a rate which should apply from April 2021 and beyond, so the minimum rate of pay will reach 66% of average wages in four years’ time, subject to economic conditions.

Chancellor of the exchequer Rishi Sunak said: “Today we’re publishing a new remit for the independent Low Pay Commission. They now have a formal target that, as long as economic conditions allow, by 2024 the national living wage will reach two-thirds of median earnings. On current forecasts, that means a living wage of over £10.50 an hour.”

Bryan Sanderson, chair of the LPC, said: “The target for the national living wage to reach two-thirds of median earnings by 2024 is an ambitious one. We will need to listen closely to what employers and workers are telling us, and to very carefully assess the economic evidence in making our recommendations. The current concerns around the coronavirus only reinforce the importance of taking economic conditions into account.”

Sanderson said the LPC would launch a consultation to help inform recommendations on the minimum wage rates for 2021 in the coming days.

Diane Gilhooley, a partner and global head of employment, labour and pensions at Eversheds Sutherland, said the target represented a potential 5-6% increase in the NLW each year until 2024.

“This ambitious target will affect many employers, including those not currently concerned with minimum wage issues, and many had already voiced concerns over its affordability before the covid-19 outbreak,” she said.

Paul Holcroft, an associate director at HR consultancy Croner, commented: “Besides from coronavirus, the government has reaffirmed their previous pledges to keep increasing the national living wage to £10.50 an hour by 2024, which had previously been put into doubt in post-election commentary. While this will place an additional burden on businesses, employers do at least have several years in which to budget for this.

The national living wage will apply to workers aged 23 and over in April 2021, with a target for it to apply to workers aged 21 and over by 2024. Currently, only workers aged 25 and over qualify for the higher minimum rate.

Former chancellor Sajid Javid first made the pledge to increase the NLW to £10.50 an hour in the Conservatives’ 2019 election campaign. At the time, Javid said lowering the age threshold for the national living wage from 25 to 21 would “help the next generation of go-getters get ahead” and “reward the hard work of all millennials”.

From 1 April 2020, the NLW will increase from £8.21 per hour to £8.72 – an increase of 6.2%.

The chancellor also revealed an increase in the national insurance threshold from £8,632 to £9,500 in four weeks’ time.

He said: “That’s a tax cut for 31 million people, saving a typical employee over £100. And taken together, our changes to the national living wage, income tax, and now national insurance……mean that someone working full time on the minimum wage will be more than £5,200 better off than in 2010.”

Ben Wilmott, head of public policy at the CIPD, commented: “It’s good to see the threshold rising for NICs as it means people will be able to keep more of their pay packets without their entitlements being affected, like the state pension.However, given that the NIC threshold is now edging closer to the income tax threshold, it does beg the question if the two should merge to create a simpler system.

“The increase in employment allowance on National Insurance bills will be welcomed by small firms and charities, especially those who have seen their payroll costs jump due to rises in the national living wage.

“However, it will be important to flag to those firms, especially ones without HR support, that the allowance will now have to be claimed annually – and won’t be rolled forward as was previously the case.”

Holcroft said: “National insurance relief is also intended to be provided to employers who hire veterans. While it is ultimately up to employers who they hire, this will no doubt serve as a strong incentive for them to consider taking such steps.”

Sunak also announced plans to reduce the number of doctors who pay tax on their pensions, in response to concerns that senior doctors in the NHS were deterred from working additional shifts because it meant they had to pay more tax on their pensions. The tapered annual allowance for pension tax relief will increase to £200,000.

Sunak said: “Based on their vital work for the NHS, that will take around 98% of consultants and 96% of GPs out of the taper altogether.

“At the same time, I’m reducing the minimum annual allowance to £4,000 – which will only impact those with incomes above £300,000.

“This is a £2bn commitment that supports our hardworking doctors.”

Svenja Keller, head of wealth planning at advisory firm Killik & Co, said “The change to pension rules for doctors – with more clarity and support for their annual allowance conundrum – is great news and, at long last, should be a significant boost to frontline healthcare.

“That said, by trying to help NHS doctors the increase in allowance threshold is now applicable to everyone. Why not just abolish it? This would have brought far more simplicity and the threshold is now so high that it will take many out of the tapering regime regardless.”

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