Understanding the difference between the government’s minimum wages and the Living Wage Foundation’s real Living Wage can be confusing, especially since the minimum wage for over 21s was renamed the “National Living Wage” back in 2016. We welcome any increase to the minimum wage so that workers can keep pace with the cost of living, but despite any name changes it is important to note the difference between the two rates. The rates are set differently, have different purposes, and implications for workers and employers. In this blog, we’ll dive into what sets them apart and why the distinction matters.
The government has announced an increased to the "National Living Wage" - that's the minimum amount all employers in the UK are legally required to pay workers aged 21 and over. Set by the government, this wage is a percentage of median earnings, with a target of reaching 66% of median earnings by 2024. The National Living Wage, alongside the National Minimum Wage (for those 18-20), provides a base-level income to protect workers’ rights.
The real Living Wage on the other hand is a voluntary wage rate independently calculated by economists at the Resolution Foundation on behalf of the Living Wage Foundation. Unlike the government’s wage rate, the real Living Wage is calculated based on the cost of living to account for essentials like housing, food, travel but also small discretionary expenses that allow for a decent standard of living, for example a meal out for a child’s birthday or school uniform at the start of term. As of the latest rate, the real Living Wage stands at £12.60 per hour across the UK and £13.85 per hour in London to reflect the city's higher living costs.
Katherine Chapman, Director of the Living Wage Foundation, said: "It is positive to see increases to the minimum wage that will help workers keep pace with the cost of living, particularly as prices remain high. It is important to remember that the government’s rate is the legal minimum employers must pay — it is separate to the real Living Wage which is a voluntary standard and the only wage rate that is solely based on the cost of living.
More than 15,000 employers are already going beyond the legal minimum to ensure their regular and contracted staff like cleaners are always paid a real Living Wage and can live with security and dignity. This includes over half the FTSE 100, as well as thousands of smaller employers who see paying the real Living Wage as an investment in their workforce, leading to better morale, retention, and productivity."
UK Wage Rates: What exactly is the difference as of April 2025?
The real Living Wage |
The government's National Living Wage (minimum wage for 21 and older) |
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|---|---|---|
Purpose and Calculation |
Independently calculated using a methodology by economists at the Resolution Foundation and overseen by the Living Wage Commission. The real Living Wage is based entirely on living costs. The calculation is based on a core basket of goods and services needed by different household types for a decent standard of living. You can understand the whole calculation process by watching this animation. | Is based on a target percentage of median earnings, it is the minimum wage floor across the UK. |
Mandatory vs Voluntary |
Voluntarily paid by over 15,000 employers to all employees aged 18 and over, including household names such as IKEA, KPMG, and LUSH, who commit to paying their staff fairly so they can live with dignity and stability. Thousands of small and medium sized businesses are also signed up to the scheme. | Mandatory for all employers to pay employees aged 21 and over. |
London vs UK Rates |
The real Living Wage has a separate London Living Wage rate in recognition of the higher costs of living and working in the capital. | No, the minimum wage has only one UK wide rate. |
What difference does it make to workers? |
Workers paid the real Living Wage benefit from a wage that is specifically designed to cover what they need to have a decent standard of living. We hear time and time again of the positive difference it makes. As of April 2025 when the new minimum wages come into effect, UK workers on the real Living Wage will still receive £760.50 a year more than the legal minimum, rising to £3,198 a year in London. | the introduction of a higher National Living Wage is welcome news for low paid workers. However, the extent to which it will cover the full cost of living remains to be seen, and it still fall short of the independently calculated real Living Wage. |
Sam who works at Living Wage accredited employer Thomas Kneale, recently told us: “Having worked as a temp on a low paid, zero-hours contract earlier in my career, I know first hand the challenges living on a low, non-guaranteed income can bring and the effect these challenges can have on a person’s health & wellbeing and general enjoyment of life. I rented and lived in some very unpleasant properties, I was unable to go on holidays, I rarely went out, I was constantly having to choose between one bill or another, I was always cancelling appointments as I couldn’t afford to get there and even putting off Drs appointments until payday as prescriptions were too expensive. Safe to say all of this had a really poor effect on my health and overall outlook on life.
Now I'm paid a real Living Wage, these problems no longer exist. I am excited about my future, I am now settled in a comfortable home, I have been on holiday a couple of times this year and if I want to go out from time to time I can. Now all my bills are all paid by direct debit, and I can live my life on my own terms without the stress and anxiety of living with no money.”
The Living Wage movement first started in 2001, when community groups in East London, working alongside Citizens UK, began campaigning for wages that reflected real living costs. In 2011, the Living Wage Foundation was established to promote and recognize employers who voluntarily pay the real Living Wage. In 2016, the government introduced its “National Living Wage” for workers aged 23 and above (now extended to 21+). However, only the real Living Wage is based directly on living expenses. You can read more on our History page.
Despite the huge impact of the Living Wage movement , there are still 3.5 million workers across the UK are in low paid and insecure work. New research published earlier this year found that 42% of workers earning below the real Living Wage have less than £10 left over after paying for their essentials. The research also found that two in five workers earning below the real Living Wage have used a food bank in the past year, with 28% relying on them at least once a month. You can read more about the research here.
Want to know more?
Find out which employers are accredited with the Living Wage Foundation here
Learn more about the calculation here