Prime Minister Promises National Living Wage Rise….But Does It Go Far Enough

Wages Going UpThe new year is a time when governments throughout the ages have made all manner of promises to put a spring in the step of their populous, and Boris Johnson has been no different in the early going of 2020.

He has focused his attention on something of a hot potato: the national living wage.

This, he has promised, will rise by 6.2% in the next quarter, meaning that by April the hourly pay for workers over the age of 25 will be a minimum of £8.72 – aiding more than three million people.

This increase is four times the current rate of inflation, with the Prime Minister saying that ‘for too long, people haven’t seen the pay rises they deserve’.

It’s the kind of move usually held over for electioneering, so credit the Tories for bringing it in after their victory at the polls, although the amount is down on the £9 living wage promised by 2020 by the David Cameron government.

And business leaders have claimed that having to stump up the extra cash will put extra pressure on their financial bottom line, and they have pleaded with the government to reduce costs in other areas to bridge the gap.

What is the National Living Wage?

The National Minimum Wage was introduced by the Labour government two decades ago to ensure that lower paid workers were not taken advantage of by unscrupulous business owners.

This was rebranded in 2016 by the Conservatives as the National Living Wage, taking into account recommendations from the Low Pay Commission that suggested a higher minimum had to be introduced for younger workers too.

The national living wage has reduced the number of people defined as being ‘low paid’, i.e. earning less than 60% of the average national salary. That has helped to reduce inequality, with workers being paid the minimum wage now earning 13% more than a decade ago in real terms.

How Much Is It in 2020?

As of April, the latest raft of changes introduced by the government will go live.

As such, a new set of rates will be brought into play:

  • 25 and Over – £8.72
  • 21-24 – £8.20
  • 18-20 – £6.45
  • Under 18 – £4.55
  • Apprentice – £4.15

Independent research has revealed that the introduction of the national living wage has not led to job losses, as first feared, with businesses cutting back on their workforce as a result of the enforced law change.

However, business rates are set to increase by 1.7% in April as well, so there will be pressure applied to the profit and loss sheet.

Is the National Living Wage Enough?

Broke Man

Back in 2015, the then chancellor George Osborne claimed with some bombast that the national living wage would be £9 by the year 2020.

There are reasons why that figure has not been met, including a weakened economy and lower-than-expected growth. Brexit has also implicated how much money businesses are able to free up for salary increases.

The failure to make Osborne’s target will cost the average worker £1,600 per year in their pay packet, and there are some critics of the national living wage who claim it simply isn’t enough to raise younger workers out of poverty.

That said, the average growth in pay in the UK has been increasing year on year, with a huge quarterly increase of 3.9% from February to May 2019. That slowed to 3.2% between July and October.

The end of 2019 also brought with the end of a decade, and as far as worker pay goes the 2010s have been a dark time on the whole.

Indeed, this was the weakest decade since the end of the Napoleonic wars as far as wage growth is concerned, with the average salary – once inflation has been taken into consideration – worth less now than in 2008.

Looking forward, the Conservatives have promised a National Living Wage of £10.50 by 2024. But will they be able to achieve it? And, given inflation and the increased cost of living, will that hourly rate even scratch the surface of what is required?

As ever, all that glitters is not always golden….