The Impact of the National Living Wage

On the 1st April 2016, the National Living Wage came into force for those aged 25 and over, who must now be paid a minimum of £7.20 per hour. For this age group, this increased their minimum wage from £6.70 per hour to £7.20 per hour. The National Living Wage is scheduled to increase on the 1st April each year from now on.

The introduction of the National Living Wage has generated much debate. On the one hand, Jeremy Corbyn accused the Government of corrupting the term ‘living wage’, as he argues that the rate of £7.20 per hour is less than what is “generally understood” to amount to a living wage. According to the Living Wage Foundation, the Living Wage should be calculated in terms of the “basic cost of living in the UK” and that on that basis, the current voluntary National Living Wage (which is increased each November) is £8.25 per hour for those living outside London, and £9.40 per hour for those living in London. The Living Wage Foundation argue that the problem with the Government’s current compulsory National Minimum Wage is that it is calculated on the basis of median earnings as opposed to the actual cost of living.

Nevertheless, the Institute for Public Policy Research (IPPR) contend in a report entitled, Boosting Britain’s Low-Wage Sectors: A Strategy For Productivity, Innovation And Growth, that the National Living Wage has had an adverse impact. Employers, they say, have reduced fringe benefits, bonuses and commissions, and overtime, in response to the introduction of the National Living Wage, and they now have less money to invest in new technology and on enhancing productivity. The job vacancies site, Indeed, also report that there was a 9% fall in job vacancies in April 2016 as a direct result of the introduction of the National Living Wage. Moreover, Andrea Leadsom, writing for the Daily Mail on the 1st June 2016, contends that the National Living Wage is acting as a “migrant magnate”. She stated: “Last week we saw figures showing that immigration into our country is continuing to rise. With the inevitable pull factor of the National Living Wage, that can only increase.” This was a message that was endorsed by Boris Johnson. In an interview, he stated: “One of the things I don’t think people have focused upon is the impact of the living wage on the whole migration issue…There are parts of the EU where the minimum wages are about of a fifth of the level that we set in this country. It will have a massive magnetic effect.”

Nevertheless, immigration issues are a completely separate issue and should have no bearing on what UK employers pay their employees. There should be a National Living Wage and it is only right in a civilised society that there is a basic minimum that ensures that workers across the board do not fall below the poverty line. As for what the level of the National Living wage should be, then that needs to be a careful balancing act between facilitating economic growth on the one hand, and the need to pay workers properly on the other. The Daily Telegraph reported last year that the number of ‘working poor’ (those who are in work but live below the poverty line) had increased by 70% in London alone. It is this trend that the National Living Wage is designed to reverse.

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