This is our sixth annual report on the prevalence of low pay in Britain. It uses the latest data available (2015) to map out the scale of low pay and the groups that are most affected. It shows how this has changed over recent decades and looks at what the coming years might hold, particularly given the result of the EU referendum and the introduction of the National Living Wage (NLW).
We find that in April 2015:
- One-in-five employees (21 per cent, or 5.7 million individuals) were low paid in Great Britain, using our core measure of low pay. There has been little change in this proportion over the past 20 years.
- More than one-in-five employees (23 per cent, or 6.3 million individuals) were paid less than the voluntary Living Wage. This proportion is unchanged since 2014.
- One-in-twenty employees (6 per cent, or 1.5 million individuals) were on the minimum wage. This proportion has been increasing steadily since the early 2000s.
Across all measures, those most likely to be low paid include women, the young, part-time and temporary employees, those in lower-skilled occupations, and those employed in the hospitality, retail and care sectors.
We model what impact the NLW will have on low pay and find that:
- The NLW will reduce the prevalence of low pay to its lowest level since 1980, from 21 per cent in 2015 to 17 per cent in 2020.
- However, the NLW is also likely to lead to a significant bunching of the pay distribution. The share of employees paid only their age-specific legal minimum was around 1 in 50 in the years following the introduction of the minimum wage in 1999. In 2014, around 1 in 20 were on the wage floor. With the introduction and growth of the NLW, by 2020 more than 1 in 7 are expected to be paid at or only just above the legal minimum. This increases the need for employers and government to provide personal progression opportunities to get people beyond the wage floor.
But even a successful NLW can only do so much. Broader living standards for those on low and middle incomes will be determined by a combination of real wage growth for all (underpinned by productivity growth), employment levels, and changes in welfare support. And with pay growth projected to slow in light of the referendum result, this means that the NLW is no longer on track to reach £9 an hour in 2020 as had been projected at the 2016 Budget.
- Based on the average projection for nominal pay growth across the independent forecasts collected by HM Treasury, we estimate that the NLW will reach roughly £8.60 by 2020, though that number will continue to shift as time moves on.