‘I’m an economics expert – increasing the minimum wage could hurt vulnerable workers’ | Personal Finance | Finance newsbhunt


The sizeable increase to the National Living Wage could actually harm the prospects of vulnerable and low pay workers, an expert has warned.

The wage is increasing by almost 10 percent to £11.44 a year from next April, with the wage also being expanded to include all workers aged 21 and over.

Those aged 21 to 22 on the current minimum wage will see their pay increase by £1.26 from the current £10.18, an increase of more than 12 percent.

Mark Littlewood, director general at the Institute of Economic Affairs, said: “The rapid increase in the minimum wage risks businesses cutting jobs and hours of some of the most vulnerable workers, including those with less skills and the young.

“There is far more work to be done to reduce the tax burden, decrease spending, cut red tape, and reform public services.”

These new payment rates are coming in from April 1 next year:

  • National Living Wage (21 and over): £11.44 an hour (up from £10.42)
  • 18 to 20-year-old rate: £8.60 an hour (up from £7.49)
  • 16 to 17-year-old rate: £6.40 an hour (up from £5.25)
  • Apprentice Rate: £6.40 an hour (up from £5.28)
  • Accommodation Offset: £9.99 an hour (up from £9.10).

The increase to the National Living Wage was welcomed by other analysts. Kate Smith, head of pensions at Aegon, said: “Raising the National Living Wage to £11.44 an hour, a massive 9.8 percent increase, will bring much-needed financial relief to low-income earners, significantly boosting their earning power and help to alleviate the burden of rising living costs.

“At almost 10 percent, this is significantly higher than the most recent increases in national average earnings of 7.9 percent and September CPI of 6.7 percent used to increase most benefits.”

She said the wage increse would also provide pension benefits for low earners. Ms Smith explained: “A hidden benefit is that the increase in the National Living Wage will also have a positive impact on pension contributions, enabling employees to build up larger pension pots for a more secure retirement.

“As a result of the increase in the National Living Wage, an increase to £11.44 an hour (£20,820 a year) means employees on the National Living Wage will benefit from a total annual pension contribution of £1,166 a year made up of their own and their employer’s pension contributions, meaning almost an additional £ 150 going into an individual’s pension over the course of a year.”

Looking at the autumn statement more broadly, Mr Littlewood said it was “a step in the right direction but not a leap” with mixed messaging from the Government over tax policy.

The expert said: “Cuts to National Insurance return a substantial sum to the pockets of the average worker. Nonetheless, amidst the rhetoric about tax reductions, this Government is presiding over one of the heaviest tax burdens in the past seven decades.

“The frozen income tax thresholds amount to a stealth tax increase of around £40billion annually by some estimates. The Chancellor is essentially taking with one hand and giving back with another.”

Independent economist Julian Jessop told TalkTV he thought the Chancellor should have been bolder in his policies. He said: “It may not be enough to turn around either the economy or the political fortunes of the Conservative party.”

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