• National living wage will be ‘largest increase in minimum pay in history’, says think tank

  • 29 Mar 2016
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Employers prepare for 'ripple effect' of increased wages, projected to benefit 2.6 million staff

Earnings for the UK’s lowest-paid workers will rise four times faster than the average employee this year, thanks to October’s increase in the national minimum wage and the 50p hourly boost to pay from the national living wage (NLW).

Analysis from the Resolution Foundation shows that the lowest paid will receive a wage increase of at least 10.8 per cent when the NLW is introduced this Friday (1 April).

This is compared to the rise that the average worker will receive over the same period (in the 12 months to April 2016), which at 2.7 per cent is still more optimistic than previous forecasts.

This raises concerns for employers, as they attempt to foot the bill for the rapidly rising wage bill and manage increasing pay differentials. A CIPD survey revealed that 8 per cent of employers are planning to take on more workers under the age of 25 to avoid paying the higher wage, while a petition from B&Q staff has accused the DIY business of cutting pay on Sundays and bank holidays to offset the costs of NLW.

The NLW will be the highest minimum wage ever in real terms, according to the Resolution Foundation, 50p higher than the real-term peak in October 2007, and up to 4.5 million workers are set to benefit from its implementation.

Of all of the beneficiaries, 1.9 million will be lifted up to at least the NLW with an average wage increase of £570 per worker in 2016, the think tank said.

A further 2.6 million employees will benefit from a ‘ripple effect’ of the NLW, with an average wage increase of £160 per worker, as employers choose to keep gaps between their lowest-paid staff and those on the next pay grade.

The analysis reveals that the rapid increase is set to continue as the NLW moves towards £9 in 2020. Between 2016 and 2020, the annual rise for the lowest paid workers is set to be 5.7 per cent, compared to projected average earnings growth of 3.7 per cent over the same period.

Critics have claimed that the dramatic increase in minimum pay will put jobs at risk, and research from the Adam Smith Institute found that low-skilled, young and ethnic minority workers will be worst hit as employers struggle to justify taking on new staff at a higher cost.

However, three in 10 female workers – who account for more than 60 per cent of the beneficiaries – are expected to see a boost to their wages come 1 April, which will do wonders for the UK’s mean gender pay gap of almost 20 per cent, said Duncan Brown, head of HR consultancy at the Institute for Employment Studies.

“Employer bodies mutter darkly about the likely price increases and redundancies resulting from cash-strapped employers struggling to afford the increase… yet the Centre of Macroeconomics’ survey of leading economists released last week found that 60 per cent do not agree that the NLW will lead to lower employment, and three-quarters agree that it will have only a muted effect on prices,” he said.

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  • Yes its a significant and indeed the largest increase in minimum pay. All to be borne by employers.

    But the effect to the employee once tax and NI is taken into account is meagre.

    I can't help feeling that overall once employers have reviewed their operating costs that this will be a bad thing all round.