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  • Writer's pictureRobert Spicer

National Living Wage (NLW) comes into force on April 1st – but is it all it is cracked up to be?

On 1st April all employers must pay employees over the age of 25 the new living wage – £7.20. On the surface, this seems a positive step towards greater employee rights. However, as has been reported over the past few weeks, the consequences of implementing a 50p per hour jump has led some employers to revisit their employment practices.

It has been reported that Next, Whitbread, Tesco and B&Q, some of the largest employers in the UK, have cut overtime and reduced recruitment, with changes to night work pay and additional pay for completing hazardous work (such as forklift truck driving) also suggested. The Institute of Economic Affairs has described the move as “a tax on businesses employing low-skilled workers”, warning that there could be a move towards even greater use of zero-hours contracts and unpaid internships as an alternative.

The Office of Budget Responsibility has also suggested that the NLW will cost 60,000 jobs by 2020 in the lower-skilled working sector. The also predicted that some of the costs will be passed on to consumers. So while people may have, on average, and extra £28 per week in their back pocket, costs of goods and services may well increase.

Alongside these changes are the well documented reductions in the welfare budget – with more announcements on this expected in his Budget later today (16th March 2016). In real terms, cuts to working tax credits and housing benefits also leave those on lower income out of pocket. From April 2016, those out of employment, either due to sickness or disability, or through being a jobseeker will be reduced to £73.10 per week.

Universal Credit, which replaces a number of working age benefits, can be claimed for those on low incomes. The basic personal allowance is £317.82 per month for single people without children over 25, although additional elements can be added up to a maximum of £1517. This is reducible by 65p for every £1 earned over “work allowance”, currently at £111 per month, and limited to those with savings under £16,000, even if applying as a couple. However, from 11th April 2016 claimants must have responsibility for children and/or a limited capacity to work in order to claim. The monthly work allowance will be either £192 if housing support is included or £397 if not. There will no longer be support for those simply in lower incomes.

On these figures then, currently it would take only 15 hours of work per month to reach the limit where universal credit is reduced. A 65% taper then still applies, meaning that for every hour worked, people lose £4.68 in their universal credit. It would therefore take only 82 hours of working at the NLW per month, or 20 hours per week, before entitlement completely reduces, assuming qualification in the first place.

Suddenly an increase of 50p per hour doesn’t look as generous to employees as first thought.

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