Nearly half of minimum wage rise will be lost to tax hike, claim Lib Dems
Research published today by the Liberal Democrats has concluded that a full-time worker paid the National Living Wage will see nearly half (44%) of the proposed increase wiped out before it even reaches their bank account due to tax and the increase in National Insurance.
Currently, an employee working 40 hours a week and paid today’s National Living Wage of £8.91 an hour, takes home £16,264.50 – after income tax and the current rate of National Insurance (12%).
Once the Government raises the National Living Wage to £9.50, and National Insurance to 13.25%, that worker will see their take home pay rise by £707 a year. However, if the Government hadn’t raised National Insurance, they would have seen their after-tax income increase by £835 instead.
This means that they would have been able to keep over two thirds (68%) of their pay rise, whereas now they will only take home just over half (58%).
Once combined with the cut to Universal Credit, the same worker could be left poorer by £780 a year.
Liberal Democrat Treasury Spokesperson Christine Jardine MP said: “Ahead of the budget people will be looking to the Chancellor’s announcement of a pay rise to help them, instead they will be bitterly disappointed to see almost half of any rise snatched away by the Treasury before it even reaches their bank accounts.
“The Conservatives carelessly breaking their promise not to increase National Insurance is hitting working people hard on their paychecks, snatching back money from people who have worked hard for their salary.
“The Chancellor seems to be taking working families for granted. Instead of a fair deal, families across the country are facing a budget nightmare with a soaring rise to the cost of living paired with tax hikes left right and centre.”
For minimum wage workers claiming Universal Credit (for example, a single parent with two school-age children renting privately in England), the rise in the National Living Wage will be more than cancelled out by the Government’s benefit cut, which will leave them with a £820 hole in their household budget.