(Bloomberg) -- Taxes on minimum wage jobs will have effectively doubled in just a decade after the Labour government’s increased payroll levy comes into effect, according to research by a conservative think tank.
The Centre for Policy Studies said the combined amount of tax paid by employees and employers will rise to more than 21% of salary for minimum wage workers from April, up from 11% in 2015. The think tank said the tax increase coupled with another sharp rise in the minimum wage mean it will cost £2,367 more to employ one of the UK’s lowest paid full-time workers than it did in 2024.
The tax squeeze on employment eased during the Conservative-Liberal Democrat coalition of 2010 to 2015, but tightened under Conservative administrations that subsequently ruled until last summer’s election defeat to Labour. The burden rose partly due to wages climbing faster than the threshold at which tax is paid on salaries, particularly as workers demanded large pay increases during the cost-of-living crisis. Ministers were reluctant to increase thresholds, with the public finances still bruised from the Covid pandemic.
CPS said this “tax wedge” will grow further when Labour pushes through a hike in employers’ national insurance contributions in the next fiscal year, as Prime Minister Keir Starmer seeks to stabilize the country’s finances and pump more money into public services.
“By making it more expensive to employ people, the hikes in employer’s national insurance disproportionately affect the lowest paid or those who are looking to move back into work after being economically inactive,” said Daniel Herring, a researcher at the CPS, which was co-founded in the 1970s by Margaret Thatcher.
The increase in employers’ national insurance contributions has triggered a backlash from businesses who warn they will need to pass on the costs, potentially through job cuts, lower wage growth or price hikes. Higher taxes on staff in recent years may reduce incentives to work, also weighing on employment.
On Thursday, December’s manufacturing PMI showed jobs were cut at the fastest pace since February with factories citing the recent changes to government policy.
The increasing costs on labor-intensive businesses will particularly affect sectors such as hospitality and retail. The British Retail Consortium said Friday that footfall was down 2.2% year-on-year in December, suggesting bricks-and-mortar stores may have struggled during the crucial Christmas period.
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