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Explainer: What is the National Living Wage?

Chancellor George Osborne used the Budget to announce a compulsory National Living Wage. Credit: PA

In a headline-grabbing announcement, Chancellor George Osborne used the first all-Conservative Budget for nearly 20 years to announce a compulsory National Living Wage.

But what is the Living Wage, how does it differ from what is already in place and who is it going to affect?

What is the National Living Wage?

The wage will ensure everyone aged 25 and over receives £7.20 an hour from next April, with the figure rising to £9 by 2020.

It will effectively replace the existing minimum wage for everyone aged 25 and above.

What is the current system?

At the moment, the national minimum wage is £6.50 and applies to everyone aged 21 and over.

In March, it was announced this will increase to £6.70 in October.

Will I benefit?

People aged 25 and over will effectively be paid a new minimum wage that will be 50p more than what was due to be introduced in October.

According to the Treasury, the change will mean 2.7 million low wage workers will receive a pay rise.

By the end of this Parliament, a person aged 25 or over working 35 hours a week and previously being paid the minimum wage will see their gross wages go up by around a third compared to 2015/16, or £5,200 in cash terms.

The change will not affect people aged 24 and under currently being paid the minimum wage.

People aged 25 and over could see their gross wages go up by around a third. Credit: PA

Isn't there already a Living Wage?

Yes, but this is only used by employers on a voluntary basis.

This is calculated independently and updated annually according to the basic cost of living.

In London and nationally, this rate is already higher than what has been proposed by Mr Osborne in the Budget.

The current Living Wage for London is £9.15 an hour, lower than what the Government says its National Living Wage will be by 2020. Elsewhere the rate is £7.85 an hour, more than what has been proposed in the Budget.

What has the reaction been to today's announcement?

The Living Wage Foundation, an organisation which has campaigned for the introduction of a Living Wage, gave a mixed response to the decision.

Rhys Moore, the foundation's director, said he was delighted low earners would receive a pay rise.

However, he raised questions about what the future holds for Londoners and under-25s, and questioned if it was really a Living Wage and not just a higher National Minimum Wage.

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 be voluntary Living Wage employers.

– Rhys Moore, Living Wage Foundation director

Labour has also raised doubts about the effectiveness of the new National Living Wage.

In her response to the Budget, the party's acting leader Harriet Harman said that without tax credits, the living wage was not enough for a family to live on.

Harriet Harman said without tax credits, the living wage was not enough for a family to live on. Credit: PA

Leadership candidate Liz Kendall also highlighted the fact that it will be lower than the current Living Wage, saying Mr Osborne was offering a 2011 living wage in 2016.

Alison Garnham of the Child Poverty Action Group said the higher minimum wage was a welcome move, but warned cuts to child benefit, child tax credits and working tax credits could negate any boost families get from the measure.

It’s vital that any savings the Government makes through higher wages are re-invested to help families with children.

– Alison Garnham, Child Poverty Action Group
Alison Garnham said the higher minimum wage was a welcome move Credit: PA

ITV News Business Editor Joel Hills reports:

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