Tuesday, November 27, 2012

Consequences of the Living Wage

I posted a entry about how the people who determined the current minimum wage really didn't know what they were doing, however at the last district council meeting an agenda item was raised regarding the "living wage" currently set to £7.44 an hour. Disregarding at the moment the full breakdown of exactly how this is determined what the definitions of "reasonable" are etc. I'll approach this as I did before.

Recall that raising the minimum wage from £6.08 to £6.19 meant a weekly increase to the employer of £5.69 and a weekly increase of monies to the government in the form of taxes of £2.29.

With the living wage in place instead of the minimum wage:

£280 Gross pay (rounded up from £279.38)
£16.08 NI
£24.83 PAYE

With the employer's NI at £18.77. The government gets £59.68. That's an increase to the employer of £53.48 a week and an increase of monies paid to the government of £21.53 a week.

The jump in minimum wage meant an employer having to find an extra £296 a year; a jump to the living wage would mean an employer would have to find an extra £2,781 a year. With the jump in minimum wage the government gets an extra £119 a year; with the living wage they'd get an £1,120.

In full (with roundings) under the current minimum wage per year:

£10,771 net wage
£12,755 gross cost to employer
£1,984 to the government

With the living wage:

£12,433 net wage
£15,536 gross cost to employer
£3,103 to the government

Okay a living wage is important, but those dictating the terms need to recall that the money has to come from somewhere. Again that's an extra £2,781 per year, per employee that they expect a company to find. Where do they find the money? Hmmm how about raising prices; which leads to inflation; which means that in real times no-one's had a pay rise; which means recalculating the "living wage"; and around the circle we go.