The government’s new National Living Wage came into effect last month and quickly became a heated topic. Where many people were praising the government’s decision to create a National Living Wage, just as many were criticising the National Living Wage as the British government’s April Fools’ joke of 2016…
What is the National Living Wage?
The new mandatory National Living Wage came into effect from 1st April 2016. The new minimum wage effects workers aged 25 and above, increasing the previous National Minimum Wage rate by 50p for over 25s. This means a massive earnings increase of £910 per annum for those who were previously paid the National Minimum Wage. As with the National Minimum Wage, the government aim to increase the National Living Wage each year (with a target of £9 per hour by 2020), with the difference that the National Living Wage will change every April whereas the National Minimum Wage changes every October.
As of 1st April 2016, the current rates for wages are:
- 25 and over: £7.20
- 21 to 24: £6.70
- 18 to 20: £5.30
- Under 18: £3.87
- Apprentice*: £3.30
* (Aged 16 to 18 and those aged 19 or over who are in their first year.)
According to GOV.UK:
The government wants to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.
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.
Arguments For NLW
Higher wages encourage a higher level of productivity. People will feel more appreciated and work harder as a result.
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It is a step toward financial equality, as the UK’s most poorly paid employees received a pay rise this month. 1.3 million workers in the UK benefited immediately from the increase in minimum wage for over 25s.
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Though OBR (The Office for Budget Responsibility) state that 60,000 jobs will be lost, it will also create almost 1,000,000 new ones.
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The Office for Budget Responsibility also estimate that the new cost to businesses will amount to only 1% of profits.
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Potentially presents more employment opportunity to under 25s, the demographic with the highest rate of unemployment, as many businesses may be more willing to hire under 25s due to the lower wage.
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The new National Living Wage will reduce the wage gap between so-called “skilled workers” and “non-skilled workers”.
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George Osborne forecasts the new National Living Wage to eradicate the gender pay gap by 2020 for the country’s lowest paid workers. Last month, approximately 900,000 women saw an immediate pay rise in their hourly earnings, in comparison to nearly half a million men. By 2020, 1.9 million women will see a rise in their pay, in comparison to 1 million men, closing the gender pay gap.
Arguments Against NLW
One of the biggest criticisms workers are voicing is: why aren’t under 25s eligible for the National Living Wage? Adult workers between the ages of 21 to 24 year olds still face the same expenses as adult workers over the age of 25, and excluding them from the National Living Wage will only further demotivate them. The government’s response to this is that unemployment is higher among those aged 16-24 compared with those who are 25 and over who are supposedly “more productive”.
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According to OBR (The Office for Budget Responsibility), as many as 60,000 jobs will be lost and hours worked reduced by four million each week as a direct result of the introduction of the National Living Wage. Whereas the British Retail Consortium has warned that the number of jobs lost in the retail sector alone could be nearer to the 900,000 mark and see the closure of 74,000 stores over the next decade.
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Why should a company that requires no prior work experience hire an over 25-year-old when they can hire someone a couple of years younger for less?
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This is simply the National Minimum Wage re-branded to make the government look as if they’re encouraging financial equality.
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There already exists a Living Wage, which is an informal benchmark which calculates the level of pay workers should be given for a basic standard of living. The new National Living Wage is still way below the calculated Living Wage, which is £8.25 per hour and £9.40 per hour in London. This means that the Living Wage for those living in London is higher now than the National Living Wage actually paid is aimed to be by 2020.
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The new National Minimum Wage will increase overheads for small businesses, with an extra cost of £5,900 a year for a small retail business employing six full-time staff aged 15 or over who were previously earning the adult minimum wage.