It is not possible to provide a reliable estimate because of the information requirements and the behavioural effects it would produce.
The introduction of an exemption from income tax and disregard for NICs would have significant behavioural effects as it would introduce a cliff edge to the taxation of employees, and would mean that the personal allowance could be used to offset other income. In addition, a disregard for national insurance purposes would have serious implications for contributory benefit entitlement.
The alternate approach would be to increase the income tax personal allowance and primary threshold for class 1 NICs to the annual level of pay received by someone working full-time at the NMW. The cost of this can be determined from HM Treasury’s “Tax ready reckoner and tax reliefs”, the next edition of which will be published as part of the 2009 Pre-Budget Report supplementary documents on 9 December 2009.