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Cash and burn - will the national living wage work?

Luke Whitmore - Law on the Web

  1. 10 July 2015
  2. Employment
  3. 0 comments

George Osborne’s Budget on Wednesday brought one big surprise in the form of a so-called ‘national living wage’. It’s an idea that campaigners have been pushing for some time, but one question is on everyone’s lips: will it help?

How the new living wage will work

The national living wage will be brought in next April and will replace the national minimum wage for workers over 25, meaning that employers will be legally required to pay it. Those aged 18 to 24 will only be entitled to the minimum wage, which has a lower rate for under-21s.

The living wage will be introduced at a rate of £7.20 per hour, which is intended to increase to £9 an hour by 2020. In future it will rise in line with average income – the goal is for it to remain at 60% of national median earnings.

Rates for the national living wage will be overseen by the Low Pay Commission, who already make recommendations on the minimum wage. They will be responsible for figuring out how swiftly the living wage should rise while meeting the £9 goal within five years.

Reactions to the living wage

There has been much Conservative backpatting after the announcement of the living wage, with Osborne saying that it would offer a “fair deal” to everyone. However, responses from elsewhere have been mixed, particularly taking into account the harsher measures in the rest of the Budget.

The Living Wage Foundation is an organisation which has been pushing for the introduction of a living wage since 2011, but, while they celebrate the pay rise which many workers will see, they are concerned that the government’s definition of a ‘living wage’ does not match their own.

Rhys Moore, director of the Living Wage Foundation, explained: “The Living Wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear.

“Without a change of remit for the Low Pay Commission this is effectively a higher National Minimum Wage and not a Living Wage.”

The government plan for a living wage lags behind the rate calculated by the Living Wage Foundation, which is currently £7.85 per hour. The Foundation’s version also includes a higher rate of £9.15 per hour for London, due to higher living costs.

One other issue is that in-work benefits such as working tax credits have been slashed by the latest budget, which the Living Wage Foundation will now have to take into account – their recommended pay rate will likely need to increase to reflect this drop in income which will affect hundreds of thousands of people.

Dave Prentis, the general secretary for Unison, commented: “George Osborne’s announcement might look attractive at first glance, but as tax credits are cruelly snatched away – leaving many workers £1,200 worse off – he’s simply giving to the low-paid with one hand and taking away with the other.”

Unusually, the decision has faced criticism from both sides of the divide between employees and employers. A number of associations representing business interests have slammed Osborne for what they see as the introduction of an unbearable burden upon employers, which may lead to job losses or even bankruptcy for smaller firms.

The chief executive of the Association of Convenience Stores, James Lowman, said: “The introduction of a compulsory living wage will have a devastating impact on thousands of convenience stores.

"This will lead to retailers having to reduce staff hours, work more hours in their business and ultimately cancel their investment plans."

He claimed that the move was “a reckless way to impose a massive burden on small businesses”.

But Osborne claimed that businesses would pay lower taxes as a result of the Budget and so would not lose out with the additional expenditure required to pay the living wage.

The next few years will no doubt see turmoil within many business sectors thanks to this and many other changes introduced by this Budget, and it will be some time before we see exactly who is in the right.

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