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The gap to a real Living Wage remains five years on

Five is an exciting age. At five you’re through your early development years, and as you head off to school those who brought you into the world have their sights set on what your future holds.

So it is for the ‘National Living Wage’ (NLW) – the higher minimum wage rate for workers aged 25+ (23+ from 1 April) that came into existence five years ago.

The NLW was introduced at a rate of £7.20 per hour and scheduled to rise incrementally to reach 60% of typical hourly earnings by 2020. That target was reached last year, and the government has now set its ambitions for the NLW higher, aiming for it to reach two-thirds of typical hourly pay by 2024 (subject to economic conditions). This year's 2.2% NLW rise – to £8.91 per hour – marks the first step on that new journey.

The NLW has had a big and positive impact on the jobs market, spearheading an era of minimum wage ambition that has seen Britain rise up towards the top of the international minimum wage league table.

Full-time NLW earners are now £2,700 per year better off than they would have been if the top minimum wage rate had instead continued increasing at its pre-2016 pace. And around 1.5 million workers have earned the NLW in each year of its history (interestingly, while the ‘coverage’ of the minimum wage jumped up with the NLW’s introduction in 2016, it hasn’t increased further since).

This demonstrates the important role the NLW has played in reducing the depths of low pay for those eligible. Good reasons to wish the NLW a very happy fifth birthday and many successful years ahead.

But these celebrations come with a caveat. Picking the right name for your child can be a fine judgment, and the ‘National Living Wage’ was perhaps a confusing name to choose for the rebranded adult minimum wage introduced in 2016. Confusing because the NLW has always fallen short of the real Living Wage.

The real Living Wage is the only UK wage rate independently calculated based on the cost of living, currently standing at £9.50 across the UK and £10.85 in London.

It’s an idea that began 20 years ago, and today is voluntarily paid by over 7,000 UK businesses choosing to go beyond the government minimum – including over two-fifths of the FTSE 100; household names like Aviva, Brewdog, Google, and Everton and Chelsea Football Clubs; and thousands of small businesses and charities.

The differences between the NLW and the real Living Wage are material. At the Living Wage Foundation, we’ve calculated that National Living Wage earners have collectively received £10 billion less than they would have earned on the real Living Wage over the NLW’s five-year history.

And from 1 April, a full-time worker over the age of 23 on the NLW will receive £1,150 per year less than someone on the real Living Wage – equivalent to 11 weeks’ rent, 23 weeks’ food costs or 41 weeks of council tax bills. For a worker in London, the gap rises to £3,800.

Those of us championing the real Living Wage were worried that the terminological confusion created by the NLW’s introduction would threaten our movement. It hasn’t worked out that way – the number of employers signed up to pay the real Living Wage has increased more than sixfold since George Osborne’s original NLW announcement, meaning over a quarter of a million workers have now benefited from the Living Wage campaign.

The number of employers signing up has continued to grow at pace even during the pandemic, as businesses – particularly those in key worker sectors – recognise its value. Alongside a strong government minimum wage as the NLW continues to grow, more employers opting to pay a real Living Wage that meets everyday needs is how Britain recovers and rebuilds from this crisis.

Laura Gardiner, writing originally in HR Magazine

6th April 2021
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