Summer Budget 2015: Compulsory Living Wage will cost businesses 1% of corporate profits

Small impact of profits and jobs to be offset by lower corporation tax and National Insurance contributions, claims chancellor.

A higher compulsory Living Wage for workers aged 25 and older may decrease UK businesses profits by up to 1%, admitted George Osborne in his Summer Budget Speech.

In his address to the House of Commons the chancellor announced that the new wage will reach £9p/h by 2020 – with the first increase moving the minimum to £7.20 in April 2016.

Osborne admitted in his speech that this will have an impact on both profits and jobs. But he added that, following a consultation with the Office of Budgetary Responsibility (OBR), he was satisfied that corporate profits would be hit by “just 1%”.

On jobs, he warned that the OBR’s figures predict job losses of up to 60,000 by 2020 – but he described this as “fractional”.

He claimed that both of these concerns could be offset by changes to the employment allowance – allowing employers to hire more workers without making NI contributions.

>See also: Summer Budget 2015 – full transcript

“From 2016 our new Employment Allowance, will now be increased by 50% to £3,000,” he said.

“That means a firm will be able to employ 4 people full time on the new National Living Wage and pay no national insurance at all.”

Osborne will hope that the move will quell fears among small businesses that they will be left to pick up the slack following swingeing cuts to working tax credits for the lowest paid workers in the country.

The household threshold to qualify to working tax credits is to be reduced from £6,420 to £3,850 – meaning many families with the lowest earning potential will be left out of pocket.

Osborne said the move was an attempt to bring benefits growth back in line with that of working pay.

“Since the crash, average earnings have risen by 11%, but most benefits have risen by 21%,” he said. “To correct that, we will legislate to freeze working age benefits for four years.”

Further reading: Summer Budget 2015 as it happened

Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.

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