Almost 3 million workers in Britain are to receive a pay rise of more than four times the rate of inflation from April, after the government said it would increase the official minimum wage.
In an announcement designed to woo low-paid workers in the immediate aftermath of Boris Johnson’s election victory earlier this month, the government said the national living wage for over-25s would increase from £8.21 an hour to £8.72 from the start of April.
Johnson said the increase was the “biggest ever cash boost” to the legal pay floor. “Hard work should always pay, but for too long people haven’t seen the pay rises they deserve,” he said.
Workers over the age of 25 on the legal minimum wage, rebranded as the “national living wage” four years ago, will receive an annual pay rise of 6.2% from April – more than quadruple the level of the consumer price index (CPI) gauge of inflation, which stood at 1.5% in October. The Treasury said the increase equated to an increase in gross annual earnings of around £930 for a full-time worker on the current minimum rate.
Pay rates will also rise above inflation across all other age groups, including by 6.5% for 21-24-year-olds to £8.20, by 4.9% to £6.45 for 18-20-year-olds, by 4.6% to £4.55 for under-18s and 6.4% to £4.15 for apprentices.
The TUC general secretary, Frances O’Grady, said the rise was 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,” she said. “No more excuses, working families need a £10 minimum wage now, not in four years’ time.”
Details of the pay rise had been put on hold after the chancellor, Sajid Javid, scrapped the autumn budget as Johnson pushed for the snap election. Annual changes in the legal wage floor are typically announced alongside the autumn budget.
The Conservatives faced criticism earlier this month after including a caveat in the Queen’s speech that the election promise to raise the national living wage to £10.50 by 2024 would only happen “provided economic conditions allow”.
Javid had said at the Tory party conference in September that his party would set a five-year target to raise the low-pay floor from 60% of median earnings in Britain to two-thirds. He also said he would lower the age threshold for the national living wage from 25 to 21.
Labour had promised to introduce a real living wage of at least £10 an hour for all workers aged 16 and over immediately, in a policy designed to show it would move faster to support households than the Tories.
Average pay packets across Britain remain lower than before the financial crisis, once inflation is taken into account, after one of the worst decades for pay growth since the end of the Napoleonic wars 200 years ago. Annual pay growth has accelerated this year, repairing some of the damage by rising at the fastest rate in 11 years.
Unemployment has dropped to its lowest level since the mid 1970s and inflation has remained relatively stable in the past year, hovering below the Bank of England’s target rate of 2%, helping hard-pressed families to repair their finances.
Pay growth has started to fall again in recent months, however, against a backdrop of heightened uncertainty over Brexit and a slowdown in the world economy.
Campaigners say work no longer guarantees a way out of poverty, with figures suggesting that about 14.3 million people are struggling to make ends meet, including about 9 million people who live in families where at least one adult is working.
The latest government announcement does not meet the level outlined by the Living Wage Foundation charity, which sets a voluntary pay floor used by about 6,000 companies calculated to reflect what people need to live on.
The Living Wage Foundation sets its “real living wage” at £9.30 an hour and £10.75 an hour in London. Firms including the insurer Aviva, the Nationwide building society and football clubs such as Crystal Palace are among employers committed to paying the real living wage to more than 210,000 workers.
The business secretary, Andrea Leadsom, said the government would set out a future policy framework in the spring for raising the legal minimum pay level over the next five years.
Business leaders, however, said the government risked damaging companies at a time of heightened economic uncertainty.
Hannah Essex, co-executive director of the British Chambers of Commerce, which represents 75,000 businesses, said the move to raise the wage floor by more than double the rate of inflation in 2020 would “pile further pressure on cash flow and eat into training and investment budgets” at companies across the country.
“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,” she said, adding that many firms were struggling with rising costs.