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Barbara Kasuma: Why the new Living Wage doesn't add up

By Barbara Kasuma

Published 02/04/2016

Barbara Kasuma
Barbara Kasuma

Finally, the new living wage comes into force. As part of the Government's measures to alleviate poverty and tackle inequality, from yesterday the minimum wage is replaced with the National Living Wage, which now sits at £7.20 an hour.

On the surface this is a great move - a basic wage that means that living standards are raised for everyone, and inequality is reduced. At least, that's the theory.

And, as is so often is the case, theory and reality do not go hand in hand. The policy will, in fact, entrench inequality between the generations.

Young workers will not benefit from the introduction of the rate. For those under 25, minimum wage rates will still apply - £6.70 for workers aged 21 and over, £5.30 for those aged 18-20 and £3.87 for those aged between 16 and 17.

While those receiving the new living wage can expect their incomes to increase by 25% to £9 an hour within four years, young people on the minimum wage have no such guarantees.

At a time when we face very real problems with youth unemployment - the national unemployment rate for 16-24-year-olds was 13.7% at the beginning of January 2016, more than double that of the overall national unemployment rate - this seems like a strange solution.

To complicate things further, the Government has confusingly (although cleverly) called this new measure a "living wage".

It's important to be clear that this is not the same as, nor does it replace, the Living Wage as calculated independently by the National Living Wage Foundation - a figure which is based on the real cost of living in the UK.

The current living wage is £9.40 an hour in London and £8.25 in the rest of the country, but there are just 2,300 accredited Living Wage employers in the UK.

So, based on current rates, people earning the real living wage will still receive an additional £1.05 per hour compared to those earning the Government's National Living Wage today.

Over the course of a year, an average worker aged over 25 on the Living Wage would receive an additional £2,167.62, compared to a worker on the new Government rate.

Any increase in minimum wage packets is welcome but it should not distract us from serious poverty and inequality.

The real living wage must remain the target for employers if we're to make any real headway.

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