Sajid Javid has pledged to increase the national living wage to £10.50 an hour and lower the age at which workers are entitled to it from 25 to 21.
In his speech at the Conservative Party conference today, the Chancellor of the Exchequer said the government would increase the national living wage – currently £8.21 – by 27% over the next five years.
For the national living wage to reach £10.50 by 2024, workers on this rate of pay would see their hourly rate increase by roughly 5% each year until then. It is not known whether younger workers who earn the national minimum wage would receive pay rises at the same rate.
While fewer age bands will make the system a little easier for employers to understand, it means a significant increase in hourly pay for some workers which some small businesses may struggle to achieve,” – Kate Palmer, Peninsula
Javid said: “Over the next five years, we will make the UK one of the first major economies in the world to end low pay altogether.
“To do that, I am setting a new target for the national living wage: raising it to match two-thirds of median earnings.
That means, on current forecasts, this ambitious plan will bring the national living wage up to £10.50, giving four million people a well-earned pay rise.”
The national living wage is currently on target to reach 60% of median earnings by 2020, but Javid plans to increase this to 66% by 2024. Without this increase, the national living wage would be forecast to reach £9.55 by 2024.
The age threshold for the national living wage will be reduced in two stages. From 2021 it would drop from 25 to 23; and in 2024 those aged 21 and over would qualify. This would require legislative change.
Javid said lowering the age threshold for the national living wage from 25 to 21 would “help the next generation of go-getters get ahead” and “reward the hard work of all millennials”.
In response to Javid’s pledge, CBI director-general Dame Carolyn Fairbairn said pay rises would only be sustainable if productivity is increased, “The success of the independent Low Pay Commission has been its evidence-based approach to increasing wages without damaging job prospects. The Commission will work best if it retains the ability to judge the pace and affordability of any future wage rises.”
Kate Palmer, associate director of advisory at employment law consultancy Peninsula, said the increase are likely to hit employers hard. “While fewer age bands will make the system a little easier for employers to understand, it means a significant increase in hourly pay for some workers which some small businesses may struggle to achieve.
“Fortunately, the advance announcement of the pay increase will mean that some forward planning is possible, and budgets can be set accordingly. Despite this, the overall effect will not change; employee wages will get higher,” she said.
The voluntary Living Wage, set by the Living Wage Foundation, is currently £9.00 per hour or £10.55 in London.
Dr Adam Marshall, director general of the British Chambers of Commerce, said: “The government’s ambition to raise and simplify the national living wage is laudable but the path to doing so must be on the basis of clear economic evidence, with ample time for businesses to adjust to any changes.
“Companies already face significant cumulative employment costs, including pensions auto-enrolment, immigration skills charge and the apprenticeship levy, so government must take action to alleviate the heavy cost-burden facing firms, or risk denting productivity and competitiveness.”