Low-paid workers will receive a 6.2 per cent rise from next April as Boris Johnson seeks to shore up support among working class voters who helped deliver him a thumping victory in this month’s general election.
The government said it was delivering the “biggest cash increase ever” as it announced plans to lift the national living wage for workers aged over 25 from £8.21 an hour to £8.72.
In the previous three years, the rise in minimum wage varied between 4.2 per cent and 4.8 per cent.
“Hard work should always pay, but for too long, people haven’t seen the pay rises they deserve,” said Mr Johnson in a statement released by the Treasury.
The rise in the national living wage corresponds to a £930 increase in annual earnings for a 35-hours-a-week worker compared with the current rate.
When compared with the fiscal year ending in March 2016, the increase adds up to £3,680 in additional annual earnings, according to the Treasury.
In September, Sajid Javid, Chancellor of the Exchequer, pledged to increase the national living wage towards a new target of two-thirds of median earnings by 2024, subject to continued economic growth, corresponding to about £10.50 per hour, making it the highest in the developed world.
“We want to end low pay and put more money in the pockets of hard-working families” said Mr Javid. “But we want to do more to level up and tackle the cost of living, which is why the NLW will increase further to £10.50 by 2024 on current forecasts.”
One business group reacted cautiously to the government’s plans. “It’s vital that increases in the national living wage are manageable for small firms and do not put jobs at risk,” said Craig Beaumont, director of external affairs at the Federation of Small Businesses. “Four in 10 small employers say they will raise prices in response to a NLW increase of this magnitude. One in four say they will recruit fewer workers and one in five will cancel investment plans.”
Last month, the Low Pay Commission, the independent body that advises the government on the national living wage and the national minimum wage which applies to workers under 25, said that nearly 3m workers would benefit from the plans for a pay rise. But it added that the increase should be supported by measures aimed at raising productivity in the low-paying sectors and warned it could be “stretching” for many employers.
A Treasury-commissioned report published last month by Arindrajit Dube, professor at the University of Massachusetts Amherst, backed the government pledges to introduce further pay rises, but warned about the need to reconsider the decision if “the evidence suggests significant losses in jobs”.
All age groups will benefit from a pay rise with an even faster increase for those aged 21 to 24 years who will see their minimum wage increase by 6.5 per cent to £8.20 per hour.
Meanwhile the living wage for younger workers aged 18 to 20 years old will rise by 4.9 per cent to £6.45 per hour.
The increase in the minimum wage since 2016 has already resulted in a sharp decline in the share of low-paid jobs, defined as those below two-thirds of median hourly earnings according to data from the Office for National Statistics published in October.
On an hourly earnings basis, the proportion of low-paid employee jobs fell to 16.2 per cent in 2019, the lowest since the series began in 1997.