National Living Wage – good news, but some important questions
George Osborne announced today that the government would introduce a new National Living Wage of £7.20 per hour for workers aged 25 and above, to apply from April 2016 onwards (Budget Report, p32, Para 1.121). This will take the form of an initial 50p supplement to the existing adult rate National Minimum Wage (NMW), which will be £6.70 from October 2015 and is expected to increase again in October 2016.
The Chancellor also gave the Low Pay Commission a new remit for the coming year. The LPC , which advises the government on setting the rates of the NMW, was asked to take account of the Government’s ambition to have an adult NMW that reaches £9.00 per hour by 2020, and to report on the pace of increase. The LPC will also be given responsibility for setting the over 25s living wage premium in future years.
Naturally the TUC is pleased to hear that the NMW will go up for some workers (Government says 2.7 million) and indeed the chancellor even paraphrased our campaign phrase “Britain need a pay rise” when making the announcement. We have consistently been arguing that the NMW could be significantly higher. But as always, there are some important questions still to be answered:
- How does this announcement intersect with the public sector pay cap of 1 per cent, which has been further extended? A common-sense reading would mean that the public sector must implement the National Living Wage from April 2016, but there has been no analysis of the knock-on effects for the pay of others in public sector as far as I know.
- What happens to under 25s, as they must not simply be left behind? The TUC has argued that concept of “the rate for the job” should apply to the NMW, and that the 18-21 year old rate should thus be phased up to the full adult amount in order to avoid unfair age discrimination. Instead there will effectively now be 5 rates for the NMW (16-17, 18-20, 21-24 year old adults changing in the middle of each NMW year, the National Living Wage for adults aged 25 and above, plus a special low rate for apprentices aged 19 or under and older apprentices in the first year of training.
- another question concerns the behavioural effects that the new rate will have around the boundary between under and over 25s. One issue is that younger workers who see older colleagues getting paid more for the same job may tend to become demoralised and thus less productive. Thus it seems likely that their rate must also rise quite sharply in the 2016 review
- A related point concerns the planned expansion of the apprentices programme. We are strongly in favour of developing high quality apprenticeships, but headlong expansion has brought some significant problems around pay. An official survey found nearly 1 in 5 employers paying apprentices less than the NMW, whilst HMRC reports that apprentices now feature in 1 in 4 NMW underpayment cases. This needs to be sorted out.
Pragmatism demands that we look favourably on a measure that is likely to give a couple of million people a pay rise. Exactly how favourable our gaze will be depends on the outstanding questions yield fair answers.