What does the minimum wage rise mean for you?
On the 1st April this year, the new national minimum and living wage rises will come into effect, affecting millions of employees up and down the country. This inflation busting rise will help mitigate some of the effects of the current economic situation, but what does this mean for graduates as they enter the world of work?
1. The rises coming into effect
As of next month, all graduates will be entitled to a higher National Minimum Wage (NMW), regardless of where in the country they live. For those completing a 3 year degree (having attended straight after college), they will see an increase of nearly 10% in their standard hourly rate – rising 82p from £8.36 to £9.18. For those who perhaps delayed their studies, or even completed a postgraduate course, once they hit the age of 23 they are entitled to the National Living Wage (NLW). The NLW is different to the NMW, and it is worth noting that this is not the Real Living Wage (RLW). Whereas the RLW is a voluntary wage paid by employers to help their employees cope with the higher cost of living, the NLW is now a mandatory wage for workers over 23 across the country – and there are big penalties for those companies who don’t pay what they should!
2. Changes taking effect in relation to student loan repayments
In February, the UK Government announced significant changes to the way in which student loans are administered and repaid. The Department For Education initially released statistics that indicated this would result in lower/middle earning graduates paying an additional £15,000-£19,000, however, their second set of figures led the IFS to revise this to an extra £28,000 over their lifetime. The reason for this dramatic increase is twofold; firstly, the threshold where graduates start to repay their loan has been lowered from £27,000pa to £25,000pa. Secondly, the amount of time in which graduates must repay their loan before it is written off has increased from 30 to 40 years.
3. Increases in national insurance rates
Among other changes currently being introduced, the government has raised the national insurance rate from 12% to 13.25%. Whilst this may seems like a relatively small increase, the effect will be wide spread in affecting a large proportion of the working population – especially those in junior, low paid roles. For someone £20,000 for example, they can expect a relative increase in their yearly NI contributions of £89. The government has argued that these changes are necessary, as they will help to alleviate the financial pressures both the NHS and the wider economy have been facing. Nevertheless, many have pointed out that this flies in the face of the manifesto pledge the Prime Minister made in 2019 and that young people in particular have made sacrifices throughout the pandemic, only to be further affected by this rise.
4. Other consequential factors to consider
On top of these government influenced changes to people’s working lives, there are a number of other global factors contributing to the cost of living crisis. The Russian incursion into Ukraine has had a dramatic and wide spread effect on the international economy. As investors have been spooked into being more fiscally responsible/restrictive, at the same time fears of an energy shortage have resulted in a rapid increase in average household bills, compounded by the removal of the energy price cap in the UK. This comes at a time where recent graduates are already faced with a rocketing rental market, as people continue their return to city centres and offices, as opposed to remote working. Numerous organisations are also warning that this is a problem that is likely to get worse, not better, as the conflict in Ukraine and fears of a Russian gas shut off escalate.
5. The overall outlook
Overall, graduates face a mixed outlook in the coming months and years. As has now so often become the case, the troubles that graduate workers face are not of their own choosing or doing. Instead, relentlessly changing external factors threaten to increase the hardship they face. The minimum and living wage rises will go someway towards helping offset some of the issues, nevertheless, if energy prices, taxes and repayment windows continue to increase, this may actually leave many people in a relatively weaker position. One silver lining that people can look to in this period, is that with world events changing so quickly, and the economic impact of COVID expected to balance out faster than that of a recession, there is still cause for optimism – and there will always be another wage rise next year!