UK Minimum Wage Increased

The UK minimum wage is set to increase as of today, leaving around one million employees nationwide with a statutory pay increase as a result. Additionally entitlement to annual leave has also increased as of today, as part of an ongoing reform of employment law and benchmark employment standards.

The full rate for minimum wage has increased from £5.35 an hour to £5.52 an hour, leaving the average minimum wage earner with an extra £7 a week in pay. Meanwhile the rate for 18-21 year old employees has increased to £4.60 from £4.44, and 16-17 year olds will see a rise of £0.10 an hour to £3.40 at statutory minimum.

Also in force as of today is the requirement to give 24 days a year in annual leave to full time employees, as opposed to the previous minimum of just 20. This will continue to rise incrementally to 28 days in 2009, to bring the UK in line with conditions elsewhere in Europe.

Whilst the move has been welcomed by trade unions, many industry analysts and employers have felt that the cost to the economy will be significant in terms of both inflation and loss of taxation revenue.

With income increasing, consumer spending is likely also to see a boost which will inevitably drive up prices. Furthermore business owners, particularly those with substantial wage bills at present may have to increase product prices in order to counteract the effect of the wage increase and maintain margins, which could ultimately cancel the effect altogether.

According to a report released today by the British Retail Consortium, the cost of the minimum wage increase last year to retailing businesses alone was in excess of £1.7 billion, looking likely to cost the same if not more this time around.

In terms of public revenue, the excess wages will fall to be taxed within the 22% income tax bracket, whereas it would previously have been charged at a marginal corporate rate of 30% for many of the large retailing chains, according to experts in public finance.