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Prime Minister Boris Johnson has praised the “biggest ever” increase in the national living wage, which will come into effect next April.
However, the British Chambers of Commerce warned the above-inflation increase would “pile further pressure” on businesses’ cashflows.
According to data from the independent Low Pay Commission, the 51p increase in the national living wage to £8.72 from £8.21 is the largest since the rate was introduced in April 2016.
The previous biggest increase was in April 2016, when the rate rose by 50p from £6.70 to £7.20 per hour.
The national living wage is the name for the minimum wage level payable to adults over the age of 25. Those under the age of 25 and apprentices are paid at a lower rate.
Younger workers who receive the minimum wage will see their pay boosted between 4.6% and 6.5% depending on their age, with 21 to 24-year-olds seeing a 50p increase from £7.70 to £8.20 an hour
Hannah Essex, co-executive director at the British Chambers of Commerce, said an above-inflation pay increase came at a difficult time for businesses.
She said: “Businesses want to pay their staff a good wage. They recognise and support the drive to improve living standards.
“But many have struggled with increased costs in a time of great economic uncertainty. Raising wage floors by more than double the rate of inflation will pile further pressure on cashflow and eat into training and investment budgets.
“For this policy to be sustainable, government must offset these costs by reducing others, and impose a moratorium on any further upfront costs for business.”
However, Mr Johnson welcomed the “biggest ever cash boost to the national living wage”, which was announced by Chancellor Sajid Javid in September.
He added: “Hard work should always pay, but for too long, people haven’t seen the pay rises they deserve.
“Our government will put a stop to that, giving nearly three million people from Edinburgh to Eastbourne a well-earned pay rise, including the biggest ever cash boost to the national living wage.
“But that’s not all. As we enter a new decade, we’re setting our sights higher, to help people earn more over the next five years and level up access to opportunity across our great country.”
Mr Javid said the wages of the lowest-paid full-time workers have increased by £3,600 since the national living wage was introduced in 2010.
He added: “But we want to do more to level up and tackle the cost of living, which is why the national living wage will increase further to £10.50 by 2024 on current forecasts.”
In September, when the Chancellor first announced the increase, he said the national living wage would rise towards two-thirds of median earnings by 2024, “provided economic conditions allow”, to about £10.50 per hour.
The Government said nearly £3 million workers are set to benefit from the increases and it is “on track” to meet its current target for the NLW to reach 60% of median earnings by 2020.
The new rate starts on April 1, 2020 and results in an increase of £930 over the year for a full-time worker on the national living wage.
Nye Cominetti, an economic analyst at the Resolution Foundation think tank, welcomed the increase but warned it is “not risk-free”.
He said: “This latest ramping up of the legal wage floor will boost the pay packets of millions of workers.
“With the Government committed to delivering one of the highest wage floors in the world by 2024, we are set for another parliament of big pay rises for the UK’s lowest earners of around 5% a year.
“This ambition is welcome but not risk-free. It should be matched by a renewed commitment to swiftly evaluating evidence of the impact of such large and sustained minimum wage rises – and acting on that evidence if problems emerge.”
Frances O’Grady, general secretary of the Trades Union Congress, said a £10 per hour national living wage is needed now.
She added: “This is a long-planned raise, but it’s also long overdue.
“Workers are still not getting a fair share of the wealth they create. And in-work poverty is soaring as millions of families struggle to make ends meet.
“No more excuses, working families need a £10 minimum wage now, not in four years’ time.”
Craig Beaumont, Federation of Small Businesses director of external affairs and advocacy, urged the Government to implement pro-business measures ahead of the next financial year.
He said: “This government has promised a reduction in the jobs tax through an increase in the employment allowance.
“With a national living wage increase of this size now on the horizon, it’s critical that it delivers swiftly, particularly with small business confidence plumbing new depths ahead of the election.
“We need this support announced in good time ahead of April’s increase so small businesses can plan ahead.”
Katherine Chapman, director of the Living Wage Foundation, said the increase does not take the minimum wage up to £9.30 – or £10.75 in London – which the charity said is the base level needed to meet the needs of the public.
She said: “Today’s announcement will be welcome news for low-paid workers.
“There are still over 5 million workers in the UK earning less than the real Living Wage and many families will have struggled with extra costs over the holidays, so this increase in the minimum wage provides a vital pay boost.
“However, there is a still a gap between the government minimum and the real Living Wage, independently calculated based on what it costs to live.”
