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New ‘national living wage’ unveiled in summer Budget 2015

The Chancellor of the Exchequer gave his Budget to Parliament on Wednesday 8 July 2015. In a surprise announcement, George Osborne said there will be a new ‘national living wage’, introduced from April 2016 for workers aged 25 and over. Initially this compulsory wage floor will be set at £7.20 and hour, rising to £9 and hour by 2012.

The existing national minimum wage – currently pitched at £6.50 an hour for those aged 21 and over – will remain in place and the new ‘national living wage’ will be a supplement for workers aged 25 and over.

'It’s because we’ve taken these difficult decisions, and overcome the opposition to them, that Britain is able to afford a pay rise. Because let me be clear: Britain deserves a pay rise and Britain is getting a pay rise. I am today introducing a new National Living Wage. We’ve set it to reach £9 an hour by 2020. The new National Living Wage will be compulsory. Working people aged 25 and over will receive it. It will start next April, at the rate of £7.20.

The Low Pay Commission will recommend future rises that achieve the government’s objective of reaching 60% of median earnings by 2020. That is the minimum level of pay recommended in the report to the Resolution Foundation by Sir George Bain – Chair of the Low Pay Commission.

Let me address the impact on business and employment. The OBR today say that the new National Living Wage will have, in their words, only a “fractional” effect on jobs. The OBR have assessed the economic conditions of the country, and all the policies in the Budget. They say that by 2020 there will be 60,000 fewer jobs as a result of the National Living Wage but almost one million more in total. They also estimate that the cost to business will amount to just 1% of corporate profits. To offset that I have cut corporation tax to 18%.’

Some reaction and analysis

Media reporting

Here’s what the Living Wage Foundation thinks

Rhys Moore, Director, Living Wage Foundation, said:

‘We are delighted that the announcement made in the Budget this lunchtime will see over 2.5 million workers receive a much needed pay rise. This is a massive victory for Citizens UK and those communities, workers and business leaders who have campaigned for a Living Wage since 2001. We agree with the Chancellor that work should be the surest way out of poverty. However, this announcement raises several important questions.

Is this really a Living Wage? 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. Secondly, what about London? We have been working with the Mayor of London for seven years and there’s a London Living Wage rate that recognises the higher costs in the capital, currently £9.15 per hour. These changes will not help the 586,000 people for whom even the 2020 rate announced today would not be enough to live on now. Thirdly, what about the two million under-25s who are not covered by this announcement? To make sure workers in London and those under 25 do not lose out, we call on employers to join the group of 1,600 organisations that have already chosen to become voluntary Living Wage employers.’