10 July 2015 #Employment
This week’s huge news is the announcement by the Chancellor of a new “National Living Wage” which will effectively replace the National Minimum Wage for workers over the age of 25.
The new compulsory level of pay will see hourly wages raised to £7.20 in April 2016 and £9 an hour by 2020 for workers aged over 25.
This represents a 50p per hour improvement on existing plans to increase the national minimum wage to £6.70 in October this year, as previously set out by Osborne in his coalition government Budget last March.
The argument will be over the long term effect on the economy of this move. It is not one supported by the CBI. CBI director-general John Cridland said: “Firms will welcome measures to balance the books and boost investment, but they will be concerned by legislating for wage increases they may not be able to deliver. The CBI supports a higher skilled, higher wage economy, but legislating for a living wage does not reflect businesses’ ability to pay. This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6%.”
However, arguably an equally major issue is the use of the terminology “national living wage” rather than “national minimum wage”. The term 'living wage' is already in use by the Living Wage Foundation, completely unrelated to the Low Pay Commission which so far has recommended the national minimum wage rate. The Living Wage Foundation has set pay levels of £9.15 in London and £7.80 in the rest of the UK. Both amounts, which are already paid voluntarily by many employers.
So, is this a re-branding exercise? Commenting on the announcement, Rhys Moore, director of the Living Wage Foundation said: “Is this really a living wage? [Our] living wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear. Without a change of remit for the Low Pay Commission this is effectively a higher NMW not a living wage.
The Chancellor’s announcement does raise the key issue of what exactly is the proper remit now of the Low Pay Commission?
The change from “national minimum wage” to “national living wage”, using fundamentally the same terminology as the Living Wage Foundation but not the same rates and measures is bound to cause confusion. The unions have long campaigned for the living wage and the issue now for them is how to build on this latest, rather surprising development. Employers federations internationally at the International Labour Organisation, including the CBI, have taken a clear stance in resisting standards on a “living wage” . At international level, the ITUC are campaigning hard to further the concept of the living wage.
The question is whether the economic gamble the Government are taking over the new national living wage also turns out to be a political one as well.