Backlash over Budget plan to increase National Living Wage to more than £12 per hour for millions: Warning over impact on firms as Chancellor Rachel prepares 6% hike alongside tax rises_Nhy
Rachel Reeves is facing a backlash against plans to hike the National Living Wage to more than £12 per hour while also putting up taxes for businesses, over fears it could send some to the wall.
In a move expected to boost the income of millions of the lowest paid, the Chancellor is expected to use tomorrow’s Budget to unveil a ‘significant’ rise in what will be rebranded the ‘new living wage‘.
It will see the baseline payment rate rise to as high as £12.20, a 6 per cent increase – three-times the rate of inflation.
The expected change came under fire today from the right and the left, with firms saying that it meant a double-whammy on businesses also due to be hit with an increase in National Insurance contributions (NICs).
While this will boost many workers’ pay packets, it could also deal a blow to firms’ bottom lines and raise fears they could delay or even cancel taking on new staff.
Tina McKenzie, policy chairwoman at the Federation of Small Businesses (FSB), called for extra tax help for owners, saying: ‘Raising employer NICs at the same time as employers adjust to a higher National Living Wage is why the Government should step up and significantly increase the Employment Allowance.
‘Reducing tax employers pay on wages is how you get sustainable rises staff actually feel in their pockets.’
At the same time, the Resolution Foundation think tank pointed out that it amounted to the smallest increase in the minimum wage in three years. Last year it went up 10 per cent.
Nye Cominetti, its principal economist, said: ‘The smaller rise in the minimum wage next Spring – expected to be the first time in almost a decade when it has risen no faster than typical wage growth – is sensible in the context of an expected rise in employer National Insurance contributions at the same time. The Government may want to take a more ambitious approach in future years.’
Government sources said the Chancellor would use tomorrow’s Budget to unveil a ‘significant’ rise in what will be rebranded the ‘new living wage’
While this will boost many workers’ pay packets, it will also deal a blow to many firms’ bottom lines and raise fears they could delay or even cancel decisions to hire new staff
The Low Pay Commission, which advises the Government on the level of the ‘National Living Wage’, has previously projected that the minimum could rise by 3.9 per cent next April – double the rate of inflation – which would take it from £11.44 an hour to £11.89.
But government sources indicated the final figure will be higher as the quango will now be using a new mandate handed to it by Ms Reeves in the summer, which will require it to take greater account of the cost of living.
The Times reported that the hourly wage of the lowest paid workers would rise from £11.44 to between £12.12 and £12.20 from next year.
The move comes on top of plans to raise employers’ NI by between one and two per cent in a £20 billion raid on business.
Ms Reeves came under attack as she faced MPs today, less than 24 hours before her Budget debut.
She was accused of triggering a ‘collapse in business confidence’ by discussing the Government’s economic inheritance.
Conservative former minister Sir Desmond Swayne told MPs: ‘Investment requires a measure of optimism, not the collapse in business confidence that (Ms Reeves) has engineered. She would have done better to stress some of the positives that she inherited, wouldn’t she?’
Ms Reeves replied: ‘It’s good to be explained how to do my job by one of the members opposite who crashed our economy.
‘£63.5 billion of investment into the UK were announced at our international investment summit, investment in life sciences, investment in data centres and digital, investments in clean energy, because businesses have confidence that this Government is bringing stability back to our economy, and working with businesses to seize the opportunities.
‘I am really excited about doing that in all parts of our country and working with business to do so.’
Ms Reeves has insisted she will produce a Budget for ‘strivers’. But Education Secretary Bridget Phillipson caused further anger over the weekend when she declined to say whether small business owners on modest incomes qualified as ‘working people’, a phrase that has had Labour figures, including the PM, in a muddle for a week.
She told the BBC that she would meet the Government’s definition, despite a salary of more than £160,000, saying: ‘My income derives from my job, and I’ll pay whatever taxes are required of me.’
But she refused to say whether a small business owner making an average net profit of £13,000 a year would be covered by the protection from tax rises.
The Federation of Small Businesses said the rise in NI alone would increase the cost of hiring the average worker by £600.
Executive director Craig Beaumont, said the rise would be ‘a tax on pay, hours and jobs which would lead to recruitment freezes – or worse’. He added: ‘Small business owners are among the hardest working people imaginable.
Keir Starmer (pictured in Apia, Samoa) has insisted tomorrow’s fiscal package will ‘rebuild’ services and the economy
They are strivers, working long hours to run their business and in many cases create jobs and opportunities.’
Labour’s election promise that it would not raise taxes on working people was yesterday replaced by a ‘payroll pledge’ that workers will not see immediate rises in deductions from their pay cheques after the Budget.
But the more limited pledge leaves open huge scope for stealth taxes and levies on business as Ms Reeves seeks to raise an extra £35 billion in tax.
Ms Reeves is set to tear up her ‘fiscal rules’ to allow her to borrow up to £50 billion to invest in infrastructure and growth sectors.
NICs is charged at different rates for employers, employees and the self-employed
The tax burden is already running near a post-war record high
Jittery financial markets have already pushed up the cost of government borrowing amid fears about the scale of the government’s plans.
Former Bank of England governor Mervyn King warned the move could push up mortgage rates if Ms Reeves fails to convince financial markets that the scale of borrowing is justified.
New research from the CBI has predicted that a tax raid on British family businesses could see the UK lose out on £29billion and around 400,000 jobs.
