4 August 2015

  |  CBI Scotland

Update

Introduction of the National Living Wage

The Chancellor announcement of the introduction of the National Living Wage (NLW) will raise the minimum wage for those aged 25 and over to £7.20 from April 2016. 

Introduction of the National Living Wage

This represents an 11% increase over the current minimum wage, which will rise from £6.50 to £6.70 in October this year, alongside the longer-term commitment from the Chancellor to raise the new NLW to £9 by 2020.

The National Minimum Wage (NMW) will continue to be the pay floor for employees aged between 21 and 24. This means that there will be five statutory wage rates:

  1. the apprenticeship rate (applies to those aged 16-18 and those aged 19 and over in the first year of their apprenticeship)
  2. the 16-17 year old youth rate
  3. the 18-20 year old youth rate
  4. the former adult NMW rate that now just applies to those aged 21-24
  5. the new NLW for those aged 25 and over.

CBI’s response to the announcement highlighted our support for a higher skilled, higher wage economy but warned that legislating for a living wage does not reflect businesses’ ability to pay – and is taking a big gamble that the labour market can absorb year-on-year increases of an average 6%.

Living wage debate

In recent times there’s been much debate about the introduction on a living wage. The NLW differs from the living wage which is an informal benchmark designed to reflect the cost of living. There are two rates of living wage, one for London (£9.15) and one for the rest of the UK (£7.85) – both are higher than the introductory rate on the NLW (£7.20), which indicates that debate about the introduction of a living wage is not over.

As the living wage calculations assume full take-up of in-work benefits, it means any cuts to these benefits will necessitate a rise in the current living wage rate. In response to calls for the introduction of a living wage the CBI have stated that whilst they can be a useful guide for those businesses able to pay more, individual business circumstances vary hugely, so any introduction should be done on a voluntary, aspirational approach.

From a Scottish perspective the living wage debate has focused most recently on its inclusion in the Scottish Government’s Business Pledge. As the NLW and the living wage are differentiated the introduction of the new rate of pay will not be sufficient to apply to the Scottish Government’s Business Pledge which require businesses to pay the hourly rate of £7.85.

The CBI will be at the forefront in helping business to navigate the changes and we will work with the Low Pay Commission and government to get the best and most affordable approach for you.

For more information or to get involved in our work contact Rachel Smith, CBI’s senior labour market policy economist - rachel.smith@cbi.org.uk