New National Living Wage comes into force today

The government’s new mandatory National Living Wage (NLW) comes into action today, with employers based across the country required to pay staff aged 25 and over £7.20 an hour as a minimum rate.

Chancellor, George Osborne announced the new National Living Wage in last year’s Budget in a bid to create a higher-wage, lower-welfare economy.

Employees aged 21 to 24 will continue to be entitled to the current National Minimum Wage of £6.70 an hour. But by the end of this parliament, it is hoped the NLW will increase to more than £9 an hour.

However, the independent Office for Budget Responsibility has warned that 60,000 jobs could be lost as a consequence of the new NLW.

The national Trade Union Centre (TUC) says the Government must ensure that everyone can benefit from the new NLW.

Frances O’Grady, general secretary, TUC, said: “Britain desperately needs a pay rise, and this increase is good news for those aged 25 or older.

“But the Government must ensure that younger workers are not left behind; 21 to 24-year-olds will not be seeing an increase.

“This is not fair. Future wage increases must narrow the pay gap between old and young.”

Interestingly, the Living Wage Foundation highlighted that its own suggested level of pay - £8.25 an hour and £9.40 an hour in London – was higher than the NLW.

Katherine Chapman, director, Living Wage Foundation, said: “The job is not done when it comes to tackling low pay.

“Businesses who can afford to pay a rate that reflects the real cost of living should do so and join over 2,300 employers signed up to pay our higher voluntary Living Wage.

“For profitable business or those who see themselves as innovators and leaders, simply not breaking the law on pay is not enough. Many businesses want to aim higher.”

Paul Johnson, director, Institute for Fiscal Studies, believes the NLW will have a bigger impact outside of the capital.

“This is going to have, in the longer run, a huge effect on the British labour market, because it’s going to affect such a large fraction of workers,” Johnson told BBC Radio 5 Live.

“It will have a ripple effect up the earnings distribution, because you will be taking the lowest-paid up to a level close to, or in some cases above, the next rung or two up the ladder.”

Date published 1 Apr 2016 | Last updated 1 Apr 2016