The Cost of Raising Statutory Pay: What It Would Mean for the Government and How It Compares to Other Spending
Campaigners have long argued for Statutory Maternity Pay (SMP) and Statutory Paternity Pay (SPP) to be increased in line with the National Living Wage (NLW), citing the financial hardship faced by new parents.
However, the UK government contends that such a move would be financially unsustainable, with ministers warning it would cost billions annually and strain the public purse.
So, what would it actually cost the government to raise SMP/SPP to match the NLW? And how does this compare to other areas of government spending? Let’s explore the numbers.
Estimating the Cost of Raising SMP/SPP
Statutory Pay (APRIL 2025):
SMP/SPP: £187.18 per week
Monthly: £812.11
Proposed Increase:
Match National Living Wage of £12.21/hour (from April 2025)
Equivalent weekly earnings (37.5 hrs): £457.88/week
Increase per parent per week: £270.70/week
Estimated Number of Claimants Per Year:
Approximately 600,000 parents claim SMP/SPP annually (ONS, 2023)
Average leave duration paid at flat rate: 33 weeks (after 6 weeks at 90% pay)
Additional Annual Cost:
£270.70 x 33 weeks x 600,000 parents = £5.36 billion
Thus, raising SMP/SPP to match the NLW could cost the government around £5.3 billion annually.
Why the Government Pays Most of This?
Employers can reclaim 92% of SMP/SPP, or 103% for small businesses, from HMRC. This means the Treasury bears nearly all of the cost, particularly for smaller employers.
Ministers argue that increasing statutory pay would significantly inflate public spending, particularly during a time of economic uncertainty and fiscal restraint.
Comparing to Other Areas of Public Spending
To put £5.3 billion in context, here are annual UK government expenditures (HM Treasury, 2023):
Education: £115 billion
Defence: £50 billion
State Pensions: £120 billion
Universal Credit & Benefits: £110 billion
NHS England: £170 billion
Cost Comparison:
Raising SMP/SPP would be 4.5% of NHS spending
Less than 5% of the annual pensions budget
Equivalent to 10% of defence spending
Approximately 4.8% of the annual Universal Credit & Benefits budget
Campaigners argue that, in this context, £5.3 billion is a modest investment in early childhood support with potential long-term benefits in workforce retention, child development, and economic productivity.
Economic Arguments for Increased Parental Pay
1. Boosting Labour Market Participation
Better parental pay could encourage return to work, especially for mothers. According to the Centre for Progressive Policy (2022), closing the gender employment gap could boost GDP by £48 billion annually.
2. Reducing Poverty
Improved pay could prevent families from falling into poverty, reducing reliance on Universal Credit and housing benefits, potentially offsetting part of the £5.3 billion cost.
3. Long-Term Health and Development Gains
Support in the first year of life can improve child health and development, potentially reducing future healthcare and education costs.
Final Thoughts
Raising SMP/SPP to match the National Living Wage would cost the government an estimated £5.3 billion annually - a significant figure, but small relative to other government budgets. While ministers argue this is unaffordable, advocates claim it is an essential investment in families and the future economy.
The debate continues, but the central question remains: Can the UK afford not to invest in its youngest citizens and the parents who care for them?
Sources:
Office for National Statistics (2023)
HM Treasury Public Spending Report (2023)
Gov.uk Statutory Pay Rates
Centre for Progressive Policy (2022)
Department for Work and Pensions (2023)