National Living Wage

The national living wage (NLW) is a mandatory minimum hourly wage for workers in the United Kingdom (UK) set by the government based on recommendations from the Low Pay Commission (LPC). The NLW was introduced in 2016 to boost the wages of low-paid workers to help them meet their household needs. Under the terms of the NLW, employers were initially required to pay employees a minimum rate of £7.20 an hour, with the rate increasing to £7.83 by April 2018 and to £11.44 by 2024.

The NLW was met with support and criticism. After it took effect, the NLW provided a direct pay raise for more than one million workers and led to higher wages for additional workers. However, the NLW has added labor costs for employers. Critics pointed out that the NLW remains below the nation's livable wage, indicating that many workers are still struggling to attain a decent standard of living.

Background

The national living wage marks the UK government's most significant intervention in the labor market since the 1990s. Chancellor George Osborne announced the NLW during his budget address in July 2015. The mandatory wage applies to part-time and full-time workers. The UK's pay wages lag behind those of other countries with developed economies. One out of every five employees in the country works a low-paying job. Osborne believed that the mandatory wage would help propel the country from a low-wage, high-welfare society to a high-wage, low-welfare one. The original goal was to increase the NLW until it reached 60 percent of median earnings, or £9 an hour, by 2020; however, by 2020 it had only reached £8.72, falling short of the goal. The 2020s, though, saw further growth, and by 2024, it had reached £10.42 for workers over twenty-one.

The NLW is different from the national minimum wage and the living wage. When the NLW was introduced on April 1, 2016, its rate of £7.20 an hour replaced the national minimum wage for adults. The national minimum wage was £6.50 when the NLW was announced in 2015 and was raised to £6.70 when the NLW took effect. The implementation of the NLW resulted in a 10.8 percent pay raise for workers who were receiving the national minimum wage the previous year. Employees who worked full time received a £1,200 yearly increase in earnings. The national minimum wage remains in effect for workers ages eighteen to twenty.

The living wage is the level of pay calculated by academics that would allow workers to meet the basic costs of living. The living wage is an unofficial benchmark and voluntary. As of 2018, the living wage was £9.00 in the UK and £10.55 in London. When the NLW increased to £7.50 in April 2017, full-time workers received £600 more a year. If the NLW stays on target, the UK will have one of the world's highest national minimum wage rates.

Overview

Since its inception, the NLW has benefited UK workers by increasing the earnings of the lowest paid. It also produced a ripple effect, boosting salaries across all low-paying sectors. In 2016, the NLW hiked the pay of 1.6 million workers directly. This included 6.7 percent of the country's adult workers at the bottom of the pay spectrum. Its effects were widespread, according to a late 2016 analysis conducted by the Low Pay Commission. The commission found that a quarter of workers age twenty-five and over received a pay bump, including those in the low-paying industries of cleaning, hospitality, and hairstyling. Employers raised the pay rate for workers at the next few levels along the pay scale to maintain wage differentials. Workers under twenty-five also benefited from the NLW. About 7 percent of younger workers saw their pay rate rise above £7.20, the Low Pay Commission reported. In April 2024, the age of eligibility for the NLW also changed from 23 to 21, which benefited younger workers.

The NLW was estimated to cover three million workers by 2020. However, this estimate fell short and, as of 2024, the number remain steady at around 1.7 million workers who have benefited from the NLW. Analysts asserted that Brexit (the United Kingdom's exit from the European Union), the COVID-19 global pandemic, and rising inflation rates impacted potential increases.

The pay boost provided by the NLW put more money in workers' pockets and provided motivation for some employees to work harder and seek additional training. However, it raised costs for employers. Businesses reported lower profits due to the mandatory wage increase. They passed the wage increase to customers by hiking prices. Many businesses expected to offset the NLW by increasing productivity. However, employers also expressed interest in adding automated processes to help lower costs. This could end up lowering job creation.

Before the NLW was enacted, some employers expected that they would have to cut jobs in response to the wage increase. The Office for Budget Responsibility, an independent fiscal watchdog for the government, estimated that the NLW would result in the loss of sixty thousand jobs by 2020. However, the Low Pay Commission and the Office for National Statistics found little evidence that the NLW affected employment patterns or growth.

The NLW has yet to match or surpass the country's living wage. The Living Wage Foundation is an independent agency that promotes the payment of the living wage so workers make enough money to cover living expenses. Although the foundation supports all types of wage increases, its officials have criticized the NLW for falling short of the living wage. The NLW's target rate of £9 an hour by 2020 was still less than the 2017 living wage rate of £9.75 in London. Likewise, the 2024 NLW was £11.44 as compared with London's living wage of £13.85. The widening gap between the NLW and the living wage means the country's lowest-paid employees would continue to be challenged to make ends meet. In addition, the government's Low Pay Commission reported in 2018 that almost one-quarter of workers entitled to the NLW had in fact been paid less than that in the preceding year, with women more likely to be underpaid than men. Furthermore, in 2024, the Living Wage Foundation reported that 2.2 million women earned less than the real Living Wage compared with almost 1.5 million men. The NLW, according to analysts, has not solved these issues. The sectors most likely to pay workers a wage lower than the NLW were retail, hospitality, and cleaning and maintenance.

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