The National Living Wage (NLW) is likely to rise to around £7.50 an hour next year, 10p lower than expected in March because of the weaker outlook for pay in the wake of the Brexit vote, according to a new report by independent think-tank the Resolution Foundation.
The new forecast of £7.50 an hour comes as the government prepares to announce the NLW rate for April 2017 around the Autumn Statement on 23 November. This is 10p down on the OBR projection in March but will still mean that a full-time worker on the NLW will receive an annual pay rise of around £600. It is expected to boost the pay of over 4.5 million workers.
The foundation has forecast that by 2020 the national living wage will reach £8.20 – less than previously estimated. The report said the wage was set to transform earnings, helping 800,000 workers out of low pay by 2020.
The policy, which had been expected to raise the minimum wage for over-25s to approximately £9 an hour by 2020, was the centrepiece of then Chancellor George Osborne’s 2015 budget.
The report notes that the sheer ambition of the NLW brings with it major challenges that need to be addressed in the coming years. It highlights that the number of workers earning the legal minimum is set to nearly triple by 2020 – with around one in seven workers earning either the NLW or the minimum wage if they’re under 25. Just one in fifty employees earned the minimum wage at the turn of the century.
It adds that the proportion of workers on the legal minimum will be even higher in cities like Liverpool and Nottingham – where around one in five workers will be on the legal minimum. In the hospitality sector close to half (45%) of all staff are forecast to be on the wage floor.
Conor D’Arcy, policy analyst at the Resolution Foundation, said: “While there is much uncertainty over Britain’s long-term economic outlook, most economists agree that wage growth in the next few years is likely to be weaker than expected prior to the referendum.
“That means we’re unlikely to see the £9 national living wage that George Osborne talked about in this parliament. As we approach the autumn statement we’ll soon learn what the [national living wage] will be next year. An increase to around £7.50 will deliver a welcome annual pay rise of up to £600 for full-time staff.
“Though that’s less than the £800 raise previously forecast, it’s sensible that the size of the rise adjusts in line with wages of typical workers. This flexibility means that calls from some businesses to scale back the wage even further are wide of the mark.
“With over 4 million workers set to be earning the new legal minimum by 2020, ministers need to work closely with employers to ensure that they’re not just able to pay the legal minimum, but can offer staff a route out of low pay altogether.”
