The Budget announcement this month of a new living wage has the potential to be confusing as it borrows the terminology used by campaigners on behalf of the low paid and applies it to the framework of the statutory national minimum wage (NMW).
The living wage announced by the Chancellor this month is an increase, from April 2016, in the rate of the NMW for workers aged 25 and over and will be implemented by introducing a “premium” increase for workers in that age group. There will be no premium increase in statutory minimum wage levels for workers under age 25 or apprentices, although they will continue to get “normal” increases.
By applying an increase only to workers aged 25 and over, the Chancellor has introduced a new age bracket into the NMW framework. Currently there are rates for three age groups: 1-17 years, 18-20 years and 21 years and over. To this will be added the 25 years and over group from April 2016.
The NMW for workers aged 21 and over is currently £6.50. Before the Budget announcement it was already due to go up on 1 October 2015 to £6.70. The Chancellor’s “living wage” or “premium” increase will see it go up again in April 2016 to £7.20, but only for those aged 25 or over. A worker aged 21 will benefit from the “normal” NMW increase to £6.70 in October but not the “premium” increase in April next year.
The level of future increases will be recommended by the Low Pay Commission but the target is that the NMW for those aged 25 and over will reach 60% of the UK’s median wage by 2020. That would apparently translate into a NMW in excess of £9.00.
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