Living wage and auto enrolment

This year I contributed to the low pay commission on the living wage, like so many accountants I was sceptical that this approach would reduce employment, but interestingly it has not.  Instead companies have adapted and unemployment has continually fallen.

 Naturally you can't increase living wages endlessly as at some point the rate does damage the employment market,  I don't usually agree with the TUC either but they make a good point in that total demand has risen in the economy.

Now our new chancellor has agreed to raise the living wage to the equvalent of 66% of median wages we have a really interesting prospect.

Within 5 years poverty wages will be abolished in the UK, and there will then be a greater incentive to work as pay rates will be far higher working and it will then even more attractive to work than not.  Changes have also been made to income tax rates so mostly this higher min earnings are not taxed either.

If auto-enrolments for pension are increased further from the current 5% employee and 3% employer rates then there is every prospect of pensioner poverty been elimated also - though it will take 40 years or so for the contributions now being made to  benefit future pensioners.

The current rates are far to low to achieve a proper replacement income, but what is needed is for the bands to apply to all earnings which has already been announced though no date confirmed and for the contirbution rates to increase further.

Employer rates need to rise to 5% to match employees which can be spread over two years, then both rates need to rise to be closer to the 14-16% that actuaries say we need to contribute, so moving to 6 % each then 7% is what is needed,

These changes need to be phases in slowly to allow business to adapt, but I am really hopeful of the benefits that will be seen once they are.

If we can combine these social changes with lower taxes for higher earners then I believe society will be transformed and for very much the better.