National living wage (NLW)

1. About the new national living wage

The government wants to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.

With record employment, the highest GDP growth in the G7, over 2 million jobs created since 2010, and 1.1 million more forecast by the Office for Budget Responsibility (OBR), the government believes that now is the right time to take action to ensure low wage workers can take a greater share of the gains from growth.

The new national living wage is an essential part of this. It ensures that work pays, and reduces reliance on the state topping up wages through the benefits system.

2. Rates

From April 2016, the government will introduce a new mandatory national living wage (NLW) for workers aged 25 and above, initially set at £7.20 – a rise of 50p relative to the current National Minimum Wage (NMW) rate. That’s a £910 per annum increase in earnings for a full-time worker on the current NMW.

The adult NMW rate is currently £6.70. From 1 April 2016 the premium will come into effect on top of the NMW, taking the national living wage to £7.20. The NMW will continue to apply for those aged 21 to 24, with the premium added on top for those aged 25 and over, taking the total hourly rate to the national living wage.

3. Low Pay Commission and future rates

The government published the Low Pay Commission’s (LPC) new remit on 8 July 2015. The government has asked the LPC to recommend the level of the path of the national living wage going forward, with the target of the total wage reaching 60% of median earnings by 2020. On OBR forecasts a full-time NMW worker will earn over £4,800 more by 2020 from the NLW in cash terms.
The LPC will also continue to provide recommendations for the other NMW rates as they have done previously.