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Will the new wage bring real change?

13 June 2016

On 1st April, the UK Government introduced a compulsory minimum wage premium for all staff over 25 years of age, and referred to it as the ‘national living wage’. It means that eligible workers will see their minimum rate of pay increased by 50p to £7.20. 

According to the Department for Business Innovation & Skills, this change, which aims to help Britain’s lowest-paid workers improve their standard of living, will affect over one million workers and could result in some taking home an additional £900 a year. A government survey also revealed that 59% of workers impacted “will feel more motivated at work as a result of the increase in their pay packets”.

On the other side of the coin, the Regulatory Policy Committee estimates the rise will cost companies £804.4 million in extra wages and staff costs. Despite this, 70% of businesses are supportive of the new national living wage, according to the latest results from the Close Brothers Business Barometer, a quarterly survey that gauges sentiment from management from around the UK and Ireland.

However, the same findings showed that 50% of business owners and managers do not believe the scheme will bring about a measurable increase in productivity, making them less optimistic than workers.

In a special feature, Jamie Wright, MD at Incentive QAS, offers one suggestion as to why. He says that the new wage is unfair to under 25s and is "likely to have an impact on morale amongst younger team members and deter others from joining the industry".

Critics have also argued that the change is nothing more than a tweak to the minimum wage regulations. By comparison, the Living Wage Foundation (LWF), an independent body, has set its national living wage at the higher rate of £8.25 per hour nationally and at £9.40 for the London area. These figures are based on the public perception of the minimum income required and on detailed budgets. Employers who choose to pay the LWF’s wage to all their employees can apply for accreditation.

But Jacqueline Kendal, head of employment law at RK LLP, says: "Perhaps the real success story of the Government's policy is the raised awareness of what constitutes a living wage and this is reflected in the fact that last year alone, 429 employers obtained accreditation from the LWF."

However, Kendal also believes this new legislation is just a starting point. She says: "As women still make up the majority of the part-time workforce, the pay discrepancy between part-time and full-time workers is likely to be reconsidered in the future, as part of the gender pay gap work by Government."

Whether this comes to pass or not, it is unlikely that the issue of pay will recede as we all try to strike a balance between preventing employee exploitation and maintaining viable businesses.