A Smaller Increase Could Leave Everyone Better Off

A 5% wage increase combined with a higher income tax threshold could leave both workers and businesses better off than a 9.9% wage increase.

Analysis shows it would provide a bigger boost to take-home pay than the larger, wage-only increase previously suggested by former Treasury Minister Dr Alex Allinson.

Despite criticism of the approach, it could be argued that much of the opposition appears to overlook or misunderstand the actual figures.

Two Competing Approaches

Under the former Treasury Minister’s proposal, a worker earning £12.25 an hour would receive a 9.9% wage increase, lifting pay to around £13.46 an hour.

However, this increase would sit alongside a lower personal tax allowance, meaning workers would begin paying income tax much earlier on their earnings.

The alternative approach now being discussed would instead deliver:

• A more modest 5% wage increase, taking £12.25 to £12.86 an hour
• Combined with a significantly higher personal allowance.

I’ve done an analysis, however as we don’t know what personal allowance will be increased to, I’ve created it based on raising the tax threshold to £20,000 – similar to that of Jersey.

While the £20,000 threshold has not been confirmed, both the Treasury Minister and the Chief Minister have publicly signalled that a “substantial” increase is planned.

What the Maths Actually Shows

Under the 9.9% wage-only model, workers earn more on paper, but are dragged further into the tax system sooner.

Income tax and National Insurance absorb a sizeable portion of the increase, leaving take-home pay lower than many critics imply.

	9.9% Wage Increase with £14,750 Threshold	5% Wage Increase with £20,000 Threshold
Original Hourly Wage	£12.25	£12.25
New Hourly Wage	£13.46	£12.86
Percentage Wage Increase	9.9%	5%
Personal Tax Allowance	£14,750	£20,000
Weekly Gross Pay	£538.40	£514.40
Annual Gross Pay	£27,976.80	£26,748.80
Annual Income Tax	£2,062.63	£702.25
Annual National Insurance	£2,118.48	£1,981.20
Annual Take-Home Pay	£23,795.69	£24,065.35
Weekly Take-Home Pay	£457.60	£462.80
Difference in Take-Home Pay	–	+£269.66 per year (+£5.20 per week)

A More Sustainable Option

The difference matters just as much for employers.

A near-10% wage increase represents a permanent and immediate jump in staffing costs, particularly challenging for sectors such as retail, hospitality, and care.

A 5% increase, by contrast:

• Is more manageable for businesses
• Reduces the risk of job cuts or reduced hours
• Helps avoid passing costs on to consumers through higher prices

Raising tax thresholds, supporters argue, supports workers without loading the full cost onto employers.

By comparison, increasing the personal allowance directly boosts take-home pay, particularly for low-income workers, and avoids what some describe as a “give-with-one-hand, take-with-the-other” tax strategy.

For workers watching every pound, and for businesses struggling with rising costs, the numbers suggest that moderation paired with tax reform delivers more than rhetoric alone.