UK 'living wage' raised to £7.85 an hour

The voluntary wage - set by the Living Wage Foundation - is now 21% higher than the compulsory National Minimum Wage, which is currently £6.50 an hour. The rate in London will rise from £8.80 an hour to £9.15, the mayor, Boris Johnson, revealed. 

The living wage has been adopted by more than 1,000 employers across the country, benefiting 35,000 workers. Despite this rise, research published by accounting firm KPMG – a supporter of the wage – found that the number of people paid less than the living wage had increased by 147,000 over the past year with a 'worrying trend' of rises among part-time, female and young workers.

However, some business groups are not happy with the increase in the living wage. The Institute of Directors (IoD) said some employers might struggle to pay it. It also said that it would rather concentrate on keeping people in work, even if it meant lower wages.

Federation of Small Businesses chair John Allan said the living wage should "remain an important aspirational goal” for firms to strive for.

He added: "A mandatory living wage would pose considerable risks to small businesses in certain sectors, especially retail and health and social care. We want Government to reduce other business costs, which would enable small firms to pass on the savings to their staff in the form of higher wages."

A Business Department spokesperson said the government would support businesses that choose to pay the living wage when it is affordable for them to do so.

The national minimum wage is set by the chancellor each year on the advice of the Low Pay Commission. It is enforced by HM Revenue & Customs (HMRC). The living wage is currently calculated by the Centre for Research in Social Policy at Loughborough University, while the London living wage has been calculated by the Greater London Authority since 2005. The basic idea is that these are the minimum pay rates needed to let workers lead a decent life.

Rhys Moore, director of the Living Wage Foundation, said low pay was a strain on the public purse, as "firms that pay the minimum wage are seeing their workers' pay topped up through the benefits system".

He added that "rewarding a hard day's work with a fair day's pay" was the driving principle behind the Living Wage.