National Minimum Wage

National Minimum Wage
Wage Bills
5.101 Given the size of our recommended increase we expect that the direct impact of our
recommendations on the wage bill is likely to be limited. We expect a very small direct
impact on the public sector wage bill as very few jobs in the public sector are paid at the
minimum wage.
Exchequer Impact
5.102 An increase in the minimum wage can also affect the public sector through savings to the
Exchequer resulting from increased tax receipts and reduced benefit payments. Table 5.3
is based on information supplied by HM Treasury and illustrates our best estimates of the
effects of the 11 pence increase in the adult rate of the minimum wage. 6 We estimate that
in total the Government would gain around £190 million from the 2012 minimum wage
uprating, nearly three-fifths of which consists of additional yield from income tax (£72 million)
and National Insurance Contributions (£40 million) as the earnings of minimum wage
employees increase. The Government would also stand to make savings from a reduction
in Working Tax Credits (£33 million) and other benefits (around £45 million in total).
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Table 5.3: Estimated Exchequer Yield and Savings from the Recommended October
2012 Uprating of the Adult Rate of the National Minimum Wage, UK, 2012/13
£ million Exchequer yield and savings from the increase in the
minimum wage to £6.19 in October 2012
Income Tax 72
National Insurance Contributions 40
Working Tax Credit 33
Child Tax Credit 16
Income Support 6
Housing Benefit 18
Council Tax Benefit 5
Total 190
Source: LPC estimates interpolated from HM Treasury calculations using 10 and 20 pence increases based on Family Resources
Survey 2009/10, uprated to 2012/13, UK, tax year 2012/13.
Notes:
a. The Family Resources Survey derives hourly wages from weekly income and hours worked, which overestimates the number of
individuals on the minimum wage. As a result the Exchequer savings presented above are also likely to be overestimated.
b. These figures take account of changes in tax credits, benefits, taxes and National Insurance Contributions but do not take any
account of likely behavioural change caused by an increase in hourly pay, such as changed levels of employment or hours worked.
c. The figures take no account of wage changes or behavioural response for those paid just above the National Minimum Wage or
changes in Exchequer yield from business or indirect taxes.
d. The figures do not include the effect of the £10,000 disregard in tax credits, which allows income to rise between one year and the
next by up to £10,000 before tax credits begin to be withdrawn. This means that the reductions in tax credits would in practice be
significantly smaller, at least in the initial tax year.
6 HM Treasury provided us with estimates of yield and savings for hypothetical increases to the minimum wage of 10 pence and
20 pence.