National living wage: Millions set for pay rise as £7.20 earnings floor comes into force

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Millions of UK workers will today receive a pay rise today as the Government’s new national living wage of £7.20 comes into force.

Unions welcomed the new hourly rate for adults over 25 – increasing by 50p from £6.70 – but said it was not fair that younger workers were missing out.

Business groups warned that firms’ paybills would rise.

The Government’s aim is to increase the rate to £9 an hour by 2020, which would affect an estimated nine million workers.

Research by the Resolution Foundation found that one in seven workers in London are set to benefit, while in the Midlands, Wales and Yorkshire and the Humber that figure rises to one in four employees.

What it means for you

Only those aged 25 and over will benefit. The lower rate of £6.70 will still apply to workers aged 21-25.

Four and a half million people are set to receive boosted pay packets in 2016 thanks to the change, according to the Resolution Foundation.

But just one in seven Londoners will benefit, compared to one in four in areas such as the Midlands and Wales. This is because the cost of living in the capital means many are already better paid than elsewhere in the UK.

Unemployment is expected to rise by 60,000 nationwide over the next four years as employers are forced to make savings to pay for the wage hike, according to the independent Office for Budget Responsibility.

Workers paid cash in hand, such as the self-employed, will rely on good will of employers to match the rate.

The new wage is separate from the voluntary London Living Wage, which is set at £9.40 an hour by the Living Wage Foundation. Some employers in the capital already pay this higher rate.

The Government said the new rate will mean a £900 cash increase for a full-time worker on the current national minimum wage.

Chancellor George Osborne said: “The national living wage will play a central role in moving Britain to a higher wage, lower tax, lower welfare economy.

“It will also mark the end of the gender pay gap for some of our lowest paid and hardest working people.”But Labour’s Owen Smith, shadow work and pensions secretary, said it was “cruel sleight of hand” to introduce a living wage at the same time as making cuts to benefits such as tax credits.

“While this higher minimum wage for the over-25s is welcome, it will feel like an act of deception for the two million families set to lose £1,600 a year through cuts to in-work support,” he said.

TUC general secretary Frances O’Grady said: “Britain desperately needs a pay rise, and this increase is good news for those aged 25 or older.

“But the Government must ensure that younger workers are not left behind. 21-24-year-olds will not be seeing an increase [on Friday]. This is not fair.”

Helen Barnard, head of analysis at the Joseph Rowntree Foundation, welcomed the living wage as “an important step” towards a high-wage, low-welfare economy.

“However, on its own it won’t do a great deal for poverty,” she said. 

“That’s partly because many workers with low hourly pay live in households with quite high overall incomes.

The British Chamber of Commerce warned the move would lead to a rise in companies pay bills, while the Confederation of British Industry’s Josh Hardie said:  “Companies are committed to raising prosperity and living standards, but for wage increases to be sustainable they must go hand-in-hand with productivity growth.

Around 2,300 employers have already signed up to the higher voluntary living wage of £9.40 an hour in London and £8.25 for the rest of the UK.

Katherine Chapman, director of the Living Wage Foundation said: “Today’s new legal minimum is an important step forward in tackling low pay in the UK. The landscape on low pay has shifted. This is down to the employers we work with who have over the past 10 years voluntarily chosen to pay beyond the minimum wage rates set by Government.”

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April 1, 2016 |
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