Summer Budget 2015: National Living Wage introduced

Summer Budget 2015: National Living Wage introduced

Chancellor George Osborne has announced a compulsory National Living Wage (NLW) of £9 an hour from 2020 for workers aged over 25.

Osborne said the initiative would lift the wages of the lowest paid to ensure workers can "take a greater share of gains from growth".

Currently one-in-five UK workers is considered low paid, compared to an average one-in-six among OECD countries.

From April next year the NLW will be set at £7.20 – 70p above the current National Minimum Wage and 50p above the increase in the minimum wage due to come into effect in October 2015.

The government will also consult with the Low Pay Commission to see how the NLW can reach 60% of median earnings by 2020. This will enable the NLW to reach its target of £9 an hour over the next five years.

It is expected that this will mean a boost in earnings for 2.7million low-paid workers and by the end of this parliament it is expected that an individual aged over 25, working 35 hours a week and previously earning the National Minimum Wage will see their pre-tax earnings rise by a third – equivalent to an additional £2,000 a year or £4,000 for couples.

The increase will bring minimum earnings to just below the UK Living Wage of £7.85 an hour or £9.15 in London as calculated by The Living Wage Campaign. The campaign was launched in 2001 by parents in London who were frustrated that working on two minimum wage jobs left no time for family life.

However while the increase is undoubtedly great news for workers, Colin Morton, lead manager of the Franklin UK Equity Income Fund, said it could pose problems for business.

"The new living wage, while a triumph for workers, will also pose problems for the retail and leisure industries which have traditionally paid their employees minimum wage as a matter of course.

"It will be interesting to see how the bigger brands adapt and amend their practices under this increased pressure and scrutiny. On the flip side, we could see a recycling of cash back into their pockets as consumers now look set to have more money in their pockets and thus more money to spend."

However, chancellor George Osborne said: "The Office for Budget Responsibility estimates that the cost to business will amount to just 1% of corporate profits. To help small firms I will cut their national insurance contributions.

"From 2016 our new Employment Allowance, will now be increased by 50% to £3,000. That means a firm will be able to employ four people full time on the new National Living Wage and pay no national insurance at all."