National living wage to rise to £7.50, Chancellor confirms

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Today’s Autumn Statement confirmed that the national living wage will rise to £7.50 per hour from April 2017.

The new rate will apply to workers aged 25 and over, and will mark the first rise in the new statutory minimum rate since it was introduced in April 2016, at £7.20.

In Philip Hammond’s first Autumn Statement as Chancellor and the first since Theresa May came to power as Prime Minister, he promised the Government would be committed to “fiscal discipline” and would make strategic investments to improve the UK’s productivity gap.

He said: “Raising productivity is essential to deliver the high-wage, high-skill economy we want.”

He pointed to the UK’s 30 percentage point lag behind Germany and the US, claiming this meant “in the real world, it takes a German worker four days to produce what we make in five; which means, in turn, that too many British workers work longer hours for lower pay than their counterparts”.

Regarding the job market, he described it as “robust”, pointing to predictions from the Office for Budget Responsibility (OBR) that the number of jobs would increase by 500,000 each year over the course of its five-year forecast. “Every UK nation and region saw a record number of people in work,” he said.

Other key announcements included:

  • The national insurance employer threshold and employee threshold will be aligned from April 2017, meaning that both employees and employers will start paying national insurance on weekly earnings above £157.
  • The personal allowance for tax will increase to £11,500 in April 2017, and will be £12,500 by the end of Parliament, with the threshold for higher-rate tax to be £50,000 by the end of the term.
  • From April 2017, those who access employee benefits will pay same tax as everyone else, although some salary-sacrifice schemes, such as childcare and cycle-to-work schemes, will be excluded.
  • The tax advantages of employee-shareholder status will be abolished after suggestions it has been misused by “high-earning individuals”.
  • New penalties will be introduced for those who enable use of tax avoidance schemes.
  • There will be a reduction in the rate at which benefits are withdrawn from people when they start work.

Hammond also pointed to the OBR’s predictions that the economy would grow at a rate of 2.1% in 2016 (compared with 2% predicted in March); 1.4% in 2017 (down from 2.2%); 1.7% in 2018 (down from 2.1%) and 2.1% in 2020 (same), with slow growth put down to Brexit-related uncertainty.

Many of today’s announcements were hinted at before the statement itself, with the Government claiming that Hammond’s proposals would “support ordinary working class families”, and that around three million households would benefit from changes to Universal Credit and higher wages.

However, shadow Chancellor John McDonnell called for the Government to offer a “real living wage” over and above the 30p rise announced.

Regarding the rise in the national living wage, TUC general-secretary Frances O’Grady said: “A raise to the national minimum wage for over-25s will help some low-paid workers. But the Government must also take the opportunity to boost the pay of hard-pressed nurses, teachers, firefighters and home helps, who face ten years of flatlining pay.”

The TUC believes working people will be around £1,000 worse off in 2020, if today’s predictions come to fruition.

The Chancellor also made the surprise announcement today that he would abolish the Autumn Statement itself, and that in future, there would be one main budget in the Autumn, with a “Spring Statement” that will respond to OBR forecasts.

XpertHR content director Mark Crail said: “At the time the national living wage was introduced in April of this year, it was forecast to rise to £7.64 in April 2017, and then again year on year until it hit £9.16 or 60% of median earnings in April 2020.

“But earnings are now expected to rise considerably more slowly, with the Low Pay Commission suggesting a likely end-point in 2020 of £8.61.

“That means that in April 2017, an employee on the national living wage will be 14p an hour worse off than they would have been if earnings had continued to grow at the rate they were in April 2016. For someone working a 40-hour week that’s £5.60 a week or £291.20 a year.

“By April 2020, they will be 55p an hour worse off, which amounts to £22 a week or £1,144 a year.”

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