National Minimum Wage: What you need to know

From October 1, British workers over the age of 16 on the National Minimum Wage will enjoy a slight increase to their pay, and the apprenticeship rate will also improve for new apprentices and those under the age of 19. The changes to each rate were outlined in this year’s Summer Budget along with the news of a compulsory National Living Wage that will be introduced from April 2016.

Increases to British Wages

All British workers in the UK of school leaving age (16 years) or over are entitled to the National Minimum Wage (NMW). Under new policy outlined in the Summer Budget, the current rate for people over the age of 21 will rise from £6.50 an hour to £6.70 from 1 October. 18-20-year-olds will see their pay increase from £5.13 an hour to £5.30 and 16 to 17-year-olds on the NMW will also have a small pay increase from £3.79 per hour to £3.87.

The apprenticeship rate will increase from £2.73 to £3.30 per hour for under 19s and those in the first year of their apprenticeship. Once an apprentice turns 19 or has worked for more than one year in a role, their pay will transferred to the NMW at its increased rate.

The most widely publicised change after the Summer Budget, however, was the introduction of a compulsory National Living Wage (NLW) in April 2016. Although a NLW does already exist (£7.85 per hour across the UK and £9.15 in London) it is not compulsory. The NLW rate to be introduced to workers over the age of 25 next April will be £7.20: a 50p increase from the rate in October and an increase of £1,200 per annum for full-time workers based on the pre-October NMW rate. George Osborne also has plans to increase the compulsory NLW to £9 by 2020.

Effect on Businesses and Workers

The government has said that it would like a higher wage, lower tax, lower welfare society. The introduction of higher NMW rates this October and the compulsory NLW next April effect an estimated 6 million UK workers.

After April 2016, the current tiered structure for those living in and outside London will be scrapped as the £7.20 rate applies to all workers. By the year 2020, the £9 NLW rate will be 15p less than the current London rate.

Big name brands like Costa Coffee and Starbucks have announced their commitment to staff pay increases: Costa baristas will earn a minimum of £7.40 an hour from October 2015 and £8.40 an hour in London. The new pay rates for staff aged under 25 years old (information above) will also apply.

Ikea will also pay its staff the living wage from next April, including the London rate of £9.15, while the cut-price retailer, Lidl, announced that it will pay all its staff the full living wage from October 2015 before bumping the pay of 9,000 staff up to £8.20 and £9.35 in London.

Several studies have been conducted on benefits of high wages in the workplace. Research by Wills and Linneker in 2012 found that, in those who took part, living wage businesses reported a 25% reduction in staff turnover (staff retention) 54% of staff claimed that they were more happy about work and 17% said that their work productivity had improved.

Although wage increases are welcome news to workers and businesses who promote improved working conditions, the Chancellor has admitted that the NLW may affect the number of new jobs created during the next five years by around 60,000. Although some businesses, including some that offer the cheapest goods in their industry, have embraced the changes - claiming that high wages are good for business - the care and hospitality industries in particular have voiced concerns about the upcoming pay increases. A study conducted by Resolution Foundation also found that a collective wage boost of around £4.5 billion in 2020 would not offset cuts to work-age benefits, working tax credits for example, estimated at £13 billion are committed to helping communities from the grassroots up. We believe that good careers advice in schools is key to improving career prospects for young people. If you would like to know more about the work we do in collaboration with local businesses, schools and colleges, please click through to our Be the Change program.

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