News | Published January 30 2020

PR Facilities Management Limited critiques minimum wage rise

Much has been made of the UK minimum wage increase set to enter force in April 2020. It was a policy pushed by Boris Johnson and his cabinet both before and after December’s general election victory, but while the impact on low-income workers may be positive, one business leader has highlighted the pitfalls of the policy and how this will affect UK businesses going forward.

The policy will see the minimum wage go up by four times the rate of inflation, with employees over the age of 25 set to receive a 6.2 per cent pay rise compared to 2019, which equates to a pay increase of £930 each year after April 2020.

The increase will also go above inflation for other age groups, with 21-24 year olds in line for a 6.5 per cent increase [to £8.20 per hour], a 4.9 per cent for 18-20 year olds [to £6.45 per hour], a 4.6 per cent [to £4.55 per hour] rise for under-18s and an additional 6.4 per cent [to £4.15 per hour] for apprentices.

Boris Johnson said of the policy that “hard work should always pay, but for too long, people haven’t seen the pay rises they deserve”.

He added: “Our government will put a stop to that, giving nearly three million people from Edinburgh to Eastbourne a well-earned pay rise, including the biggest ever cash boost to the National Living Wage.”

However, Haydn Price, managing director of PR Facilities Management Limited of Redditch, believes that the minimum wage increase is a “misguided” policy, given the impact this will have on employers.

Established in 1999, PRFM is a successful SIM fulfilment and packaging specialist offering custom solutions and automated services for large companies, including SIM manufacturers and mobile virtual network operators.

Price believes that in lieu of raising minimum wage and the national living wage, that the government should have instead raised the income tax threshold to avoid a negative knock-on effect on UK businesses due to extra costs.

Price told The Parliamentary Review: “As a sort of political commentary, we believe that the government’s pledge to increase the minimum wage was misguided”.

Elaborating on this, Price added: “[This is] not because we don’t believe that lower-paid workers should have extra money in their pockets, but, rather because we believe that there is an alternative method with the same net effect, one that doesn’t penalise the UK businesses that contribute so much to the economy.

“This alternative is raising the income threshold at which workers begin to pay tax, which leaves workers with exactly the same outcome: namely, having more money to spend at the end of the month.

“By opting for the former policy rather than the latter, the government will lessen our industry’s ability to compete abroad.”

Interestingly, alongside the minimum wage rise which will come at an extra cost for firms, the government has taken an approach which is very much in a similar vein to what Price suggests.

April 2020 will see the standard tax free allowance remain at £12,500, but the threshold for National Insurance Contributions [NICs] will increase to £9,500. The NIC threshold usually rises in line with inflation, and was projected for the next tax year to go up to £8,788.

In the 2019-20 tax year, 12 per cent of National Insurance Contributions was payable on earnings over £8,632 per year.

The Institute for Fiscal Studies [IFS] has estimated the impact that the government policy will have in the next year, and already it appears costly without an increase to the tax free allowance.

The IFS estimates that the planned increase in the NIC threshold will make 0.4 million people exempt, with employees who still pay them seeing their liability reduced by £85 per year.

16 million households would benefit by being an additional £120 per year off on average, which would rise to £200 on average if the threshold for employers to start paying NICs was also to be raised.

If the policy were to only see employee and self-employed NIC thresholds go up, the policy would cost £2 billion per year, rising to £3 billion should employer NIC thresholds go up to fall in line.

In short, it is set to be an expensive relief to benefit Britain’s households, and an increase in the income tax threshold would only increase that expense for the government.

However, it remains to be seen as to what the long-term effect will be of placing additional expense on the shoulders of business alongside this.

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Authored by

Scott Challinor
Business Editor
January 30 2020

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