National Living Wage to hit 60 per cent target in April

, , Comments Off on National Living Wage to hit 60 per cent target in April

The Low Pay Commission (LPC) today publishes its 2019 recommendations on the National Living Wage (NLW) and National Minimum Wage (NMW) and a summary of its 2019 findings, covering our analysis of the impact of the 2019 rates and the evidence for our recommendations for rates from April 2020.

The acceptance of the LPC’s recommendations means achieving the goal originally announced by the Government in 2015, of raising the NLW to 60 per cent of median earnings. The Chancellor has indicated he will set a further target of two-thirds of median earnings by 2024.

Bryan Sanderson, Chair of the Low Pay Commission, said:

The NLW has been an ambitious long-term intervention in the labour market. The rate has increased faster than inflation, faster than average earnings and faster than most international comparators. This has raised pay for millions without costing jobs, although employers have had to make a variety of other adjustments to deal with the increases.

Our recommendations on the NLW are conditioned on sustained economic growth, and this bar was more narrowly reached than in previous years. Nevertheless, the economy has continued to grow and the labour market has performed well overall.

The Chancellor’s intentions for the next phase of the NLW will mean further ambitious increases. We will continue to keep a close eye on the evidence and to report to the Government on the challenges this involves.

The LPC’s recommendations comprised:

Rate from April 2019 Rate from April 2020 Increase
National Living Wage £8.21 £8.72 6.2%
21-24 Year Old Rate £7.70 £8.20 6.5%
18-20 Year Old Rate £6.15 £6.45 4.9%
16-17 Year Old Rate £4.35 £4.55 4.6%
Apprentice Rate £3.90 £4.15 6.4%
Accommodation Offset £7.55 £8.20 6.4%

The April 2019 increase in the NLW directly raised pay for around 1.6 million workers in 2019. Overall, the number of workers paid at the rate has remained stable since 2017.

While in recent years NLW workers have done better than their counterparts paid above the rate, this year there was strong pay growth across the bottom two-fifths of the distribution. This suggests employers have taken measures to preserve pay differentials, changed their workforce structures or simply raised pay to compete with other firms.

Average weekly pay for NLW workers grew faster than for most other groups between 2018 and 2019, as these individuals typically worked more hours. This marks a change from previous years, when increases in the NLW had a weaker effect on workers’ weekly pay and therefore on living standards.

This year’s recommendations for younger workers are higher than in 2018, reflecting the strong pay growth and stable overall employment levels for these groups. This will be the final year in which the NLW will apply to workers aged 25 and over, with the age threshold coming down to 23 in 2021 and to 21 by 2024.

Notes

  1. In keeping with its remit from Government, the LPC originally submitted its recommendations in October 2019. The Government has today announced its acceptance in full of those recommendations.

  2. The LPC is today publishing on gov.uk the Chair’s letter to the Secretary of State containing the Commission’s recommendations, as well as a summary of its 2019 findings. Its full 2019 Report and data tables will follow in early January.

  3. The National Living Wage is the statutory minimum wage for workers aged 25 and over. It was introduced in April 2016 and has a target of 60% of median earnings by 2020, subject to sustained economic growth.

  4. At the 2019 Conservative Party conference, the Chancellor announced his intention to introduce a further target for the National Living Wage, of two-thirds of median earnings by 2024, with the intention of ending low pay. The LPC’s advice to the Government on this issue, submitted in advance of the Chancellor’s announcement, was published in November 2019.

  5. Different minimum wage rates apply to 21-24 year olds, 18-20 year olds, 16-17 year olds and apprentices aged under 19 or in the first year of an apprenticeship.

  6. In November 2019, the LPC published a review of the youth rates of the minimum wage, which recommended reducing the age threshold for the National Living Wage to 23 and then to 21.

  7. Rates for workers aged under 25, and apprentices, are lower than the NLW in reflection of lower average earnings and higher unemployment rates. International evidence also suggests that younger workers are more exposed to employment risks arising from the pay floor than older workers. Unlike the NLW (where the possibility of some consequences for employment have been accepted by the Government), the LPC’s remit requires us to set the rates for younger workers and apprentices as high as possible without causing damage to jobs and hours.

  8. The Accommodation Offset is an allowable deduction from wages for accommodation, applicable for each day of the week. In April 2020 it will increase to £8.20 per day, matching a commitment made in 2013 to increase it to the level of the National Minimum Wage.

  9. The National Living Wage is different from the UK Living Wage and the London Living Wage calculated by the Living Wage Foundation. Differences include that: the UK Living Wage and the London Living Wage are voluntary pay benchmarks that employers can sign up to if they wish, not legally binding requirements; the hourly rate of the UK Living Wage and London Living Wage is based on an attempt to measure need, whereas the National Living Wage is based on a target relationship between its level and average pay; the UK Living Wage and London Living Wage apply to workers aged 18 and over, the National Living Wage to workers aged 25 and over. The Low Pay Commission has no role in the UK Living Wage or the London Living Wage.

  10. The Low Pay Commission is an independent body made up of employers, trade unions and experts whose role is to advise the Government on the minimum wage. The rate recommendations contained in the 2019 Report were agreed unanimously by the Commission.

  11. The nine Low Pay Commissioners are:

  • Bryan Sanderson
  • Professor Sarah Brown
  • Professor Richard Dickens
  • Kate Bell
  • Kay Carberry
  • Simon Sapper
  • Neil Carberry
  • Clare Chapman
  • Martin McTague

Revision History: