Half of National Living Wage rise wiped out by tax and National Insurance hike

Orkney and Shetland MP, Alistair Carmichael, has responded to reports that the government plans to announce a rise in the National Living Wage from £8.91 per hour to £9.50, to come into effect from 1 April next year.

Research by the Liberal Democrats has revealed 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.

Commenting on the news Mr Carmichael said:

“This government has been trumpeting good news headlines ahead of the Budget – in contempt of Parliament and, frankly, in contempt of arithmetic accuracy. That almost half of the Living Wage rise will be wiped out by taxes and the Tories unfair National Insurance hike suggests that behind the spin there is thin gruel for struggling families.

“All the flashy photoshoots and press releases cannot disguise the harsh reality of the £20 per week cut to Universal Credit and the impact this will have for those on low incomes. At a time when we face a cost-of-living crisis with bills and prices rising here and now, we need ministers to care a little more about the reality of fiscal decisions and little less about how they can contort the figures to make themselves look good.”

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