Low pay
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Pay

Analysing the National Living Wage: Impact and implications for Britain’s low pay challenge

Conor D’Arcy
Conor D’Arcy
Gavin Kelly
Gavin Kelly

The most eye-catching announcement in the Summer Budget was the National Living Wage (NLW). National Minimum Wage workers aged 25 and over will, from April 2016, receive a premium on top of the current legal wage floor, raising their hourly earnings from £6.70 to £7.20. Thereafter, the NLW is expected to rise steadily, surpassing £9 by April 2020. This article considers this announcement and some of the important implications for the labour market and public policy. It does not focus on the changes to tax credits and benefits which we’ve looked at elsewhere.

Key findings

  • The National Living Wage is a bold attempt to get to grips with the UK’s endemic low pay problem.
  • The resulting pay increases for those aged 25 and over on low earnings will be highly significant. But to ensure the policy will work for employers, employees and the wider economy, a higher wage floor will need to go hand in hand with strong demand in the labour market and action to raise productivity.
  • Pay gains don’t in any sense justify significant cuts to in-work support and work incentives. The impacts of the cuts to in-work support will continue to squeeze the incomes of many low-income families in coming years.
  • A large amount of work remains to be done to flesh out the NLW and the future role of the LPC. This should be done carefully and in full consultation with the LPC.

Further reading

Narrowing the youth gap
Exploring the impact of changes to the minimum wage on the incidence of low pay among young people
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Louise Murphy, Esiri Bukata
Pressure on pay, prices and properties
How families were faring in October 2023
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Mike Brewer, Felicia Odamtten, Hannah Slaughter, Hannah Slocombe, James Smith
Labour Market Outlook Q4 2023
What’s happening to pay growth?
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Hannah Slaughter
Conor D’Arcy
Conor D’Arcy Senior Research and Policy Analyst
Gavin Kelly
Gavin Kelly Chair