National Living Wage Update

Action needed to successfully implement National Living Wage in lower-paying cities such as Sheffield and Birmingham

Managing major increases in the legal wage floor will be a key first test of new devolved economic leadership arrangements

Implementing the new National Living Wage will be toughest in lower-paying city regions such as Sheffield, Nottingham and Birmingham, where over a quarter of all employees will be affected by 2020, according to new analysis published today (Monday) by the Resolution Foundation.

The analysis shows that the new National Living Wage (NLW) – the new wage floor of £7.20 an hour for workers aged 25 and over, which comes into effect in April – will be felt very differently across the UK.

By 2020, around 6 million employees across the UK – 23 per cent of all employees across the workforce – are set to be affected by the NLW.

However, a far higher share of staff will see their pay increase in many cities across the country. In Sheffield, 28 per cent of employees are set to be affected – more than any other major city in the UK. A high proportion of employees in Nottingham (27 per cent) and Birmingham (26 per cent) are also set to benefit from the NLW.

In contrast just 13 per cent of employees in Oxford are set to be affected by the NLW, with London (14 per cent) and Cambridge (15 per cent) also relatively unaffected by the new higher wage floor.

The Foundation warns that implementing the new wage floor will prove particularly challenging in lower paying cities, and will be one of the first tests of economic leadership under new devolved arrangements. Minimising any job losses, and ensuring that large groups of workers do not get stuck earning only the legal minimum, should be a top priority for national government, local leaders, businesses and soon-to-be elected City mayors.

A focus on boosting productivity and progression in low paying sectors such as retail, hospitality, cleaning and care will be needed to ensure that the NLW is affordable for local employers, says the Foundation. It is currently carrying out an employer-focused investigation with the CIPD on how firms adapt to the new NLW.

The Foundation adds that, despite the name, the government’s new legal wage floor is not a ‘living wage’, and there remains plenty of scope to expand the reach of the voluntary living wage, which is currently set at £8.25 in the UK, and £9.40 in London.

Adam Corlett, Economic Analyst at the Resolution Foundation, said:

“The new National Living Wage will have a huge impact on low pay, particularly towards the end of the parliament as it approaches £9 an hour.

“But implementing the new wage floor will be challenging, particularly in cities like Sheffield where wages tend to be lower. National, local and new regional politicians must work closely with employers to ensure that the National Living Wage is a success, particularly in low paying sectors.

“It will take more than a higher wage floor to tackle Britain’s low pay problem. Expanding the reach of the voluntary living wage campaign will still deliver higher pay for thousands of workers. It’s also vital that employers create progression routes at work so that staff can be lifted out of low pay altogether.”

Number of workers directly and indirectly affected by the National Living Wage by 2020 in major city regions across the UK

ABC Comment: 

The National Minimum Wage (NMW) is the minimum wage per hour a worker is entitled to in the United Kingdom. These rates are reviewed yearly by the government and are advised by the independent body Low Pay Commission (LPC). In March 2015 the government announced that on 1 October 2015 the hourly adult rate of National Minimum Wage would rise by 20p, from £6.50 to £6.70 (3%). This is the biggest real-terms increase since 2007 and is estimated to benefit more than 1.4 million of Britain’s lowest-paid workers.

From April 2016, the national living wage will be £7.20 an hour for workers aged 25 and older. The minimum wage will still apply for workers aged 24 and under.

In 2010 the age groups were slightly altered and an apprentice bracket was also introduced. Before that the age groups were divided slightly differently and there was no applicable minimum wage for apprentices.

1.4 million people are employed at minimum wage.