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National Living Wage – EN Briefing Paper

From 1st April 2016 the new National Living Wage (NLW) comes into force for all people in employment aged

25 and over. The new National Living Wage rate is to be set at £7.20 an hour and will be compulsory for all

employers, irrespective of their size.

The National Living Wage has been introduced as part of the government’s measures to alleviate poverty and

tackle inequality. The Institute for Fiscal Studies has calculated that the National Living Wage will increase

earnings for those at the bottom end of the pay scale by around 5%. However, it is estimated that household

incomes across the board will only increase by an average of 1% following the launch of the NLW1.

Young workers aged under 25 will not benefit from the introduction of the National Living Wage as the national

minimum wage rates will still apply to these age groups. The current National Minimum Wage rates are set

at £6.70 for workers aged 21 and over, £5.30 for workers aged 18-20 and £3.87 for workers aged between 16

and 17. Apprentices are currently entitled to £3.30 an hour (for those aged under 19 or over 19 and in a first

year apprenticeship). Apprentices aged over 25 will now be entitled to receive the National Living Wage2.

The ‘Living Wage’ The new National Living Wage should not be confused with the Living Wage rate. The Living Wage is calculated

independently by the National Living Wage Foundation and is based on the basic cost of living in the UK.

Employers can chose to pay the living wage rate on a voluntary basis. The current Living Wage rate (as set by

the Living Wage Foundation) is £8.25 per hour and £9.40 in London. There are currently 2,300 accredited Living

Wage employers in the UK3.

Based on current rates the living wage equates to an additional £1.05 per hour compared to the National Living

Wage being introduced in April 2016. Over the course of a year, an average worker aged over 25 receiving

the living wage would receive an additional £2,167.62 per annum compared to a worker who will be paid the

new National Living Wage (based on an average 39.1 working hours per week4). According to the Living Wage

Foundation 1.8 million people will be impacted by the National Living Wage, compared to the 5.84 million

people who currently earn less than the ‘living wage’5.

1 Browne, J. and Hood, A. (2016) Living Standards, Poverty and Inequality in the UK: 2015-16 to 2020-21, London, Institute for Fiscal Studies. Available from: http://www.ifs.org.uk/uploads/publications/comms/R114.pdf [Accessed 31st March 2016]. 2 ACAS (2016) National Minimum and Living Wage, London, Advisory, Conciliation and Arbitration Service. Available from: http://www.acas.org.uk/index.aspx?articleid=1342 [Accessed 30th March 2016]. 3 Living Wage Foundation (2016a) What is the Living Wage? London, Living Wage Foundation. Available from: http://www.livingwage.org.uk/what-living-wage [Accessed 30th March 2016]. 4 Office for National Statistics (2015) Annual Survey of Hours and Earnings: 2015 Provisional Results, London, Office for National Statistics. Available from: http://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/annualsurveyofhoursandearnings/2015provisionalresults [Accessed 31st March 2016]. 5 Living Wage Foundation (2016b) Briefing: the April 1st introduction of the 'national living wage', London, Living Wage Foundation. Available from: http://www.livingwage.org.uk/news/briefing-april-1st-introduction-national-living-wage [Accessed 21st March 2016].

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Characteristics of the National Minimum Wage According to figures published by the Low Pay Commission6 there are currently 1.4 million wage jobs in the

UK for those aged 21 or over, of which 5.3 per cent are paid below or within 5 pence of the national minimum

wage (NMW) rate at £6.70 per hour. Young people working in low-pay sectors such as catering and hospitality

are most likely to be receiving the national minimum wage, whilst those from underrepresented groups

including ethnic minorities, women and people with no qualifications are more likely to be working in NMW

jobs.

139,000 people aged 18-20 are employed on the national minimum wage.

40,000 minimum wage jobs are held by 16-17 year olds.

13 per cent of minimum wage workers are aged under 21

59 per cent of minimum wage workers are female.

14 per cent of minimum wage jobs are filled by people from ethnic minority backgrounds and 20 per

cent are held by migrant workers.

13 per cent of minimum wage workers have no qualifications.

Minimum Wage by Sector Around 74 per cent of national minimum wage jobs are in traditionally low paid sectors, including retail

and hospitality. Collectively these two sectors account for nearly half (48%) of all NMW jobs.

In the cleaning sector 31% of jobs are paid at or below the NMW, with 29% of hairdressing jobs and 25%

of hospitality jobs also paying no more than the legal minimum.

6 Low Pay Commission (2015) Facts and Figures on the National Minimum Wage, London, Low Pay Commission. Available from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414323/facts.pdf [Accessed 30th March 2016].

Hospitality, 26

Retail, 22

Cleaning , 7

Social Care,

7

Leisure, travel and sport, 4

Hairdressing, 2

Food processing, 2

Childcare, 2 Agriculture, 1

Textiles and Clothing, 1

Non-low paying sectors, 26

National Minimum Wage Jobs by % Share by Sector

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National Minimum Wage by Region Mole Valley in Surrey has the lowest proportion of minimum wage jobs in the UK at 0.3%. In comparison, West

Lancashire has this highest proportion of NMW jobs with a rate of 21.4%. There is also evidence of a

geographic divide with London and the south east having significantly fewer NMW compared to the midlands

and north of the UK.

Youth Unemployment During the period November to January 2016 there were 3.96 million young people in work. This included

983,000 full-time students who also have part-time jobs.

For the three months 2016 (November to January) the unemployment rate for 16-24 year olds was 13.7%;

more than double that of all the overall employment rate, however the overall youth unemployment rate has

fallen considerably since the downturn peak of 22.5%. There are currently 630,000 young people aged 16-24

who are classed as unemployed, including 217,000 full-time students who are also looking for part-time work.

The number of young people who are economically active (those in work and available for work) decreased

significantly during the period as the number of young people in full-time education increased from 26.2% to

44.5%. Around 2.62 million young people are economically inactive, of which 2 million are full-time students.7

Policy Implications Elevation Networks welcomes the introduction of National Living Wage however the ‘living wage’ should still

remain as a target for employers in order to tackle inequalities. Young people in particular are still

disproportionately affected by low pay and employment outcomes, especially for those seeking entry-level

roles. We would call on larger firms to commit to paying the ‘Living Wage’ based on a particular threshold for

staff numbers or in-line with revenue thresholds.

7 Office for National Statistics (2016) UK Labour Market: March 2016, London, Office for National Statistics. Available from: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/march2016 [Accessed 30th March 2016].

4.3%

9.9%

6.6% 7.1%6.2% 6.4% 6.6%

5.1%

3.1% 3.7%4.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Scotland NorthernIreland

NorthWest

NorthEast

Wales WestMidlands

EastMidlands

EastAnglia

London SouthEast

SouthWest

Percentage of National Minimum Wage Jobs by Region