British Finance Minister, Rachel Reaves presented her first budget statement to the parliament on Wednesday. The budget tagged the ‘Tax and Spend Plan’ marks Labor’s first budget since returning to power for the first time since 2010. A major question is how the new UK budget for 2024 impacts the country’s low-wage earners.
Under the new budget, Labor plans to raise an extra £40bn in taxes, increase borrowing, and increase government spending,
Ways UK Tax and Spend Bill Affect Low-Wage Workers
Minimum Wage Raise
Starting with the positives, under the new budget low – wage earners are earmarked for a wage raise.
Beginning in April 2025, the national minimum wage for employees aged 21 and over, will rise from £11.44 an hour to £12.21 while for those aged 18-20 it will go up from £8.60 an hour to £10 per hour representing a 6.7% increase. Workers aged 16 – 17 would see their minimum wage rise from £6.40 an hour to £7.55.
Around Three and a half million low-wage workers are due to benefit from this wage increase when it fully comes into effect in April 2025. This wage increase would therefore provide a boost to their purchasing power.
Loss of Jobs
Payment of the new minimum wage is expected to put more pressure on employers. In addition to inflationary pressures and rising operational costs, the budget also includes a rise of 1.2 percentage points in national insurance contributions paid by employers.
This National Insurance contribution is paid to low-wage workers meaning some employers may cut back on hiring, reduce work hours, or increase the price of goods and services, all of which affect low-wage workers directly challenging the wage increase’s intended goal of improving workers’ lives.
The new minimum wage could therefore add to the UK’s unemployment rate which currently stands at 4%.
Increased Bus Fare
Under the new budget, the single bus fare cap applicable to many routes in England will be raised to £3 in 2025 from £2. This increased bus fare is expected to increase low-income workers’ monthly spending. For context, a worker who makes 24 bus trips a month worth £48 initially would now have to pay £72 for the same amount of bus trips.
This increased spending is expected to further strain workers’ income.
Tobacco and Alcohol Would Cost More
Due to increased taxation on tobacco and alcohol, both commodities are expected to cost more. Under the new UK budget 2024, Tobacco taxes will rise by 2% above the retail prices index (RPI) measure of inflation while the tax on hand-rolling tobacco will increase by 10%. Taxes on alcohol will rise in line with the RPI, but Reeves announced a cut in draught duty by 1.7%.
With this increased taxation of Tobacco and Alcohol, both commodities would become too expensive for low-wage workers to afford.
Private School Fees Will Rise
Private school fees are expected to rise as a VAT of 20% will be added to private school fees from 1 January 2025. This VAT means school fee payments would prove too expensive for the few low-income families whose children currently attend private schools. This would force them to move their children to public schools.
Conclusion
While the minimum wage increase in the new budget is being cheered by low-wage workers, the increased taxation in the new budget means the wage increase might not count for much at the end of the day.
Due to these taxes, the push for a true ‘living wage’ would continue for UK’s low-wage workers.
