Government pledges further hike to national living wage

Chancellor also reveals plans to extend NLW to younger workers, but experts warn increases could make small firms ‘unviable’

The government has announced plans to increase the national living wage (NLW) to two-thirds (66 per cent) of median earnings in the next five years.

The pledge was announced by Sajid Javid, chancellor of the exchequer, in his speech at the Conservative Party Conference yesterday, and could see the NLW increase to £10.50 per hour by 2024.

Javid also said the NLW, which is currently the statutory minimum wage for anyone over the age of 25, would be expanded to cover those over the age of 21 within five years.

The previous administration had planned to increase the NLW to 60 per cent of the median income by 2020, although a rise to 66 per cent had also been mooted by former chancellor Philip Hammond earlier in the year. The NLW is currently £8.21 per hour, with the national minimum wage set at £7.70 for those between 21 and 24.

Javid said: “Over the next five years, we will make the UK one of the first major economies in the world to end low pay altogether.

“On current forecasts, this ambitious plan will bring the NLW up to £10.50, giving four million people a well-earned pay rise.”

Javid said more details would be set out in the next budget, including the future role of the Low Pay Commission (LPC).

Charles Cotton, performance and awards adviser at the CIPD, welcomed the increase in principle, but said the government also needed to support employers to increase productivity.

Cotton told People Management that since the NLW was introduced in 2016, employers had mostly absorbed the cost of previous minimum and NLW increases, accepting the higher overheads and lower profits. “A lot of organisations said they were going to be focusing on improving productivity, but this hasn’t happened,” said Cotton.

“It seems to be where people have looked at productivity, it’s getting more out of people rather than looking at smarter working.

“The challenge with smarter working is it can take longer. You’ve got to review what the organisation is trying to achieve and what does that mean in terms of jobs, skills, implementing new technology or how you pay and reward people?

“While we would support the rise, it needs to be coupled with help from government in how they can boost productivity, particularly for micro and small employers.”

Mike Cherry, national chairman for the Federation of Small Businesses, also raised concerns that the increase could make small businesses “unviable”.

“Those in sectors with tight margins and which are heavily labour-dependent, such as the care sector, retail or hospitality, will be particularly badly hit without support,” said Cherry. 

“Four in 10 small employers say operating costs are rising [because of] employment costs. The chancellor must now find ways to help those smaller businesses to meet his ambition, without deterring them from expanding and hiring more employees.”

Carolyn Fairbairn, director general of the CBI, said increasing productivity was “the only way to [support] sustainable pay rises”.

Fairbairn added: “The success of the independent LPC has been its evidence-based approach to increasing wages without damaging job prospects. The commission will work best if it retains the ability to judge the pace and affordability of any future wage rises.”

Carys Roberts, head of the Centre for Economic Justice, said the increase in the NLW could be “safely done” without harming employment. “But to address wider problems, the chancellor must also look more generally at why average wages still remain below their pre-recession peak in real terms,” said Roberts, calling for stronger unionisation and a new industrial strategy.

Bryan Sanderson, chair of the LPC, said: “We are very pleased that the government has accepted our advice to lower the age of eligibility [for] the NLW from 25 to 21.

“Doing so in a phased approach balances ambition for the pay of young people with caution towards the impacts on businesses and the most vulnerable workers in this group.”