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The government wants to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.
With record employment, the highest GDP growth in the G7, over 2 million jobs created since 2010, and 1.1 million more forecast by the Office for Budget Responsibility (OBR), the government believes that now is the right time to take action to ensure low wage workers can take a greater share of the gains from growth.
The new National Living Wage is an essential part of this. It ensures that work pays, and reduces reliance on the state topping up wages through the benefits system.
From April 2016, the government will introduce a new mandatory National Living Wage (NLW) for workers aged 25 and above, initially set at £7.20 – a rise of 70p relative to the current National Minimum Wage (NMW) rate, and 50p above the increase coming into force in October. That’s a £1,200 per annum increase in earnings for a full-time worker or the current NMW.
The adult NMW rate is currently £6.50. It will increase to £6.70 from October 2015. From April 2016 the premium will come into effect on top of the NMW, taking the National Living Wage to £7.20. The NMW will continue to apply for those aged 21+, with the premium added on top for more experienced workers taking the total hourly rate to the National Living Wage.
3. Low Pay Commission and future rates
The government published the Low Pay Commission’s (LPC) new remit on 8 July 2015. The government is asking the LPC to recommend the level of the path of the National Living Wage going forward, with the target of the total wage reaching 60% of median earnings by 2020. The LPC will also continue to provide recommendations for the other NMW rates as they have done previously.