Man holding card up which reads "Living Wage"
What’s the future for the National Minimum Wage and National Living Wage?

The National Living Wage (NLW) was introduced in 2016 with the aim of ending low pay. It sets a higher legal minimum rate of pay than the National Minimum Wage (NMW) but is only applicable to workers above a certain age. 

As of 1 April 2024, the NLW has increased to £11.44 per hour, and the age at which workers become entitled to the NLW has reduced from 23 to 21. 

The Government has set targets for the NLW based on a percentage of median hourly pay. The first target was to reach 60% of median pay for workers aged 25 and over by 2020. By 2024 the Government aimed to meet its second target of workers aged 21 and over being paid two-thirds of median hourly earnings. This is widely expected to be achieved as a result of the uplift from April this year, and means the NLW represents one of the highest minimum wages in the world.

A recently published report by The Low Pay Commission (LPC), which advises the Government on NMW and NLW rates, contains a review of progress to date on minimum wage levels. It also sets out the Commission’s recommendations for future NMW and NLW policies, including the following.

Align with wider policy 

The LPC acknowledges the achievements of the NMW and NLW to date, but recognises that they must align with and support wider Government policy. This includes ensuring NMW and NLW measures mesh with other support available to workers (such as the various in-work state benefits available). At the same time, the LPC reminds the Government to consider how other policies might offset any potential downsides to the NMW/NLW, such as adding to inflationary pressures and disincentives to taking on more staff. 

Targets or principles?

The report states that the Government could either set a new NLW target rate of pay, or follow a principles based approach instead. The LPC believes that setting a revised NLW target following the 2024 objective would build on the progress to date in reducing inequality. An alternative would be to switch to a set of principles, which the Commission believes would better protect the progress made already for lower paid workers, whilst improving responsiveness to changing economic conditions.

Pay rates for younger workers

The NMW ensures minimum rates of pay for younger workers, but these are significantly lower than the NLW which is only available to those aged 21 and over. The LPC report recognises strong labour market demand for young workers and recommends lowering the age of eligibility for the NLW to 18 to reduce age inequality. 

Address ‘one-sided flexibility’ 

Whilst increased hourly pay rates as a result of the NLW have helped lower-paid workers, the LPC’s report repeats recommendations it made to the Government in 2018 to address vulnerabilities which the NLW alone cannot resolve. Their recommendations are to introduce rights to:

  • switch to a contract that reflects a worker’s regular working pattern;

  • reasonable notice of work schedules; and 

  • compensation if a shift is cancelled or curtailed at short notice. 

The Government has yet to take any action based on the LPC’s report, but policy decisions will need to balance the benefit to workers against the impact on employers and the wider economy.  

 

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.    

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