The Government will soon be enforcing a new National Living Wage which will be paid to part time and full time workers aged 25 and above. The increase in pay will begin with a base rate of £7.20 an hour and will gradually increase to £9 an hour by 2020. At face value, this all sounds great and almost too good to be true but does it really extend it far enough to make a positive addition to the pockets of workers? The introduction of the National Living Wage is intended to give 1.3 million workers a pay rise according to the Office of Budgetary Responsibility. However, as a result of having to pay more to employees, there has been a wave of firms cutting costs by axing 60,000 jobs and reducing the number of hours employees get.
The reasoning behind the national living wage has not always been clear cut especially because it sounds incredibly similar to the well-known and understood minimum wage. Despite the similarities, the national living wage does not intend to replace the minimum wage, instead it will simply be a bonus for workers aged 25 and over. Just like the minimum wage, the government has pledged to the strict enforcement of the national living wage. Refusing to pay the living wage could lead to employers paying a maximum penalty of £20,000 per worker and they also run the risk of disqualification for up to a period of 15 years. However, the National Living Wage has also been met with criticism. In particular, money saving expert Martin Lewis accused Chancellor, George Osborne of stealing the term ‘living wage’ from the National Living Wage Foundation. He also likened the living wage to a minimum wage for over-25’s and said that it was far from the revolutionary financial boost that it has been advertised to be. “But it’s like saying ‘I’ve just invented these amazing corn cereal things that are golden. We’re going to call them Kelloggs Corn Flakes!’ He told the Chancellor during an appearance on ITV’s The Agenda. However, supporters of the national living wage have hit back claiming that it would reduce income inequality and in turn, improve economic growth. It is also projected to improve productivity as workers would view the pay rise as an incentive.
We cannot ignore the fact that employers have resorted to axing jobs especially in the North. The North face challenges that London does not especially in terms of productivity and employment rates as new firms tend to favour the capital. However, the Chancellor has announced a cut in corporation tax which would amount to a tax break of £15bn by 2020 in order to help companies cope with the rise in wages. Even with the corporation tax break, companies have started to fight back- B&Q and Dunelm have made significant cuts to Sunday and bank holiday pay including bonuses. Waitrose has also stopped paying Sunday and overtime hours for new workers. Coffee chain Caffè Nero has stopped giving staff free food and has opted for an employee discount instead; however, they have been adamant that workers of all ages will receive the national living wage.
The question of whether workers are truly better off remains unanswered. What about the 1.7m self-employed workers and the under-25’s who will continue to earn below the national living wage? The government’s plans have been heavily criticised for once again, leaving young people behind. Many young people view the national living wage as discriminatory and a blatant denial of their financial security purely because of their age. The living wage is advertised by the Government as a ‘step up for hard workers’ which seems to imply that the self-employed and the under 25’s do not fall into that category. This could cause more income inequality and it also fosters a class bias which will only cause a rift between the haves and the have-nots.
Photo credit: Flickr // Siân for London