A new compulsory National ‘Living Wage’ of £7.20 per hour will be introduced next April for all working people aged 25 and over, the Government has announced.

In his first purely Conservative budget, George Osborne said that “Britain deserves a pay rise and Britain is getting a pay rise”.

The ‘national living wage’ (NLW) will be compulsory and the Low Pay Commission (LPC) will recommend future rises, with the Government aiming for it to reach £9 an hour by 2020.

Osborne said that the Office for Budget Responsibility (OBR) claimed the national living wage would have only a “fractional” effect on jobs. The OBR said that by 2020 there will be 60,000 fewer jobs as a result of the national living wage, but almost one million more in total.

The OBR has estimated that the cost to business will amount to 1% of profits. To offset that cost, the Government is cutting corporation tax to 19% in 2017 and 18% in 2020. Small firms will also benefit from a cut in their national insurance contributions.
“From 2016, our new Employment Allowance, will now be increased by 50% to £3,000,” announced Osborne. “That means a firm will be able to employ four people full time on the new national living wage and pay no national insurance at all.”

National living wage vs national minimum wage
The national minimum wage currently stands at £6.50, rising to £6.70 in October. For those aged 25 and above, their hourly rate will rise to £7.20 in April 2016.

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This article is part of the MAD-HR Employment Law content hub archive.

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