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Employment

The national living wage, real living wage and minimum wage explained

The Big Issue breaks down how much you should be taking home in your pay packet whether you’re on the minimum earning floor or due a little bit more

A fair day’s wage for a fair day’s work. It’s an old saying that has turned into a cliché but it is just as true in the age of the national living wage.

Work must pay enough money for employees to afford a home and essentials like food, water, electricity and other utility bills. Otherwise, even people who have jobs do not have the means to keep their heads above water and out of poverty and homelessness.

But how much is enough for someone to live on? And who decides how much money that should be? This is where a national minimum wage and a national living wage comes in.

What is the national living wage?

The Westminster government sets the national living wage, telling employers the minimum hourly rate that they are legally allowed to pay employees aged over 23.

As of April 1 2021, the national living wage works out at £8.91 per hour for workers, a 2.2 per cent rise on the previous rate of £8.72.

Chancellor’s Rishi Sunak announced the rise at the 2020 Spending Review, acting on recommendations from the Low Pay Commission – an independent body that advises ministers on pay rate. 

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The Westminster government has committed to a target of the national living wage reaching two-thirds of median earnings by 2024, meaning the rate should keep pace with the cost of living over the next few years.

What is the real living wage?

Unlike the government-set national living wage, the real living wage is a voluntary rate of pay that employers can choose to give to their staff. 

In many ways, the real living wage is self-explanatory – it’s paying someone enough money to live on. The Living Wage Foundation set the rate of pay based on living costs, taking into account the cost of bills, the weekly shop and other measures.

As of November 2020, employers are encouraged to pay their staff £9.50 an hour to give them a real living wage.

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Currently around 7,000 UK businesses choose to pay it, including insurer Aviva, TV channel ITV and football clubs like Everton FC.

Greater Manchester Mayor Andy Burnham has stated his intention to turn Greater Manchester into the first real living wage city region.

Following his re-election in the post, Burnham formed a Living Wage City-Region action group to work towards the goal of ensuring all workers in the city will be paid a real living wage by the end of the decade.

The action group brings Burnham together with businesses, unions, local authorities, faith groups and voluntary and charitable organisations to set out how the plans will come into force.

“The proposals we will be bringing forward will be about creating better jobs for our residents, but also about supporting our businesses to invest in people and grow in a positive and sustainable way,” said Burnham, announcing his plans. “Paying a real living wage isn’t just the right thing to do for workers – it’s the right thing for businesses too.

“People already in low-paying jobs with unpredictable hours were left exposed to the worst effects of the pandemic, on their health and on their livelihoods. Now, Greater Manchester is calling time on insecure and low-paid jobs.

“This is the first step towards making sure everyone working in Greater Manchester has the dignity of decent work, paid a real living wage for real living hours. This is what levelling-up looks like.”

What is the London living wage?

There is no mandatory London-specific living wage from the UK Government but the Greater London Authority has set a London living wage since 2005. The Living Wage Foundation’s real living wage also sets a London-specific rate. 

The foundation recommends Londoners are paid a real living wage of £10.85 an hour.

Who is entitled to the national living wage?

Prior to the April 1 rate rise, only adults aged over 25 were entitled to the national living wage. 

That age threshold has also changed alongside the rate of pay – now 23 and 24-year-olds have been included for the first time.

Business Secretary Kwasi Kwarteng has advised 23 and 24 year olds to keep an eye on their pay packets this month to ensure they receive what they are entitled to.

He said the government made the move “to support our next generation of workers”.

Around 2.2 million people receive the national living wage or the national minimum wage, according to the Low Pay Commission. Less people receive the real living wage, amounting to around 250,000 people.  

How much is the national living wage per year?

The national living wage is usually stated as an hourly rate because annual pay will depend on how many hours are worked.  

But for someone working a full-time job at a 35-hour working week, gross income would work out at about £17,300 per year before tax or pension deductions.

The government has said that the rise from £8.72 to £8.91 in April will be the equivalent of more than £345 extra per year for someone working full-time.

What is the difference between the national minimum wage and the national living wage?

The national minimum wage is the rate of minimum hourly pay for workers aged below 23 years of age.

Set by the UK government, it works out as a lower rate of pay than the national living wage.

Workers aged 21 or 22 are entitled to £8.36 per hour, as opposed to £8.91 for the national living wage that over-23s earn. This decreases to £6.56 for those aged between 18 and 20 years of age while those under-18 can be paid £4.62. The national minimum wage also applies to apprentices, who can be paid £4.30 per hour. 

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The national minimum wage has been around for a lot longer than the national living wage. It was first introduced on April 1 1999 after the National Minimum Wage Act was approved the previous year.

The national living wage followed in 2016 while Citizens UK kicked off the campaign behind the real living wage in 2001. 

Why is a minimum wage not a living wage?

The independent Low Pay Commission advises the UK government on the rate of pay for the national minimum wage and the national minimum wage.

But the Living Wage Foundation (LWF) recommends higher pay through the real living wage because they simply believe the mandatory rate is not enough to live on.

The national minimum wage and the national living wage are largely set as income floors which wages should not fall below but are not designed to ensure workers can maintain a decent standard of living above the bare minimum. 

The real living wage looks at various measures taking into account a family’s basic day-to-day needs including housing, food and clothing before setting their higher rate.

Laura Gardiner, LWF director, said: “The introduction of the national living wage has delivered a solid pay rise to minimum wage workers, and it’s welcome to see the government continuing to commit to ambitious increases.

“However, there is still a substantial gap between this wage rate and one based on the cost of living, with national living wage workers falling billions of pounds short of a real living wage over the past five years. The result has been millions of workers and families struggling to keep their heads above water.

The LWF also argues that paying the real living wage can boost businesses through improving their reputation as well as improving motivation and staff retention.

What is the living wage in New Zealand?

While Organisation for Economic Co-operation and Development (OECD) rankings show that the UK has a relatively high minimum wage – ranked eighth out of 32 countries in 2019 – pay elsewhere has attracted headlines recently.

New Zealand is one of the countries ahead of the UK in the rankings and the country’s leaders announced the minimum wage would rise to $20 per hour on April 1, the equivalent of £10.24 per hour.

Workplace Relations and Safety Minister Michael Wood told stuff.co.nz that “Many Kiwis who earn the minimum wage have gone above and beyond in our fight against Covid” as the reasoning behind the rise.

New Zealand also has a voluntary living wage much in the same vein as the Living Wage Foundation’s real living wage in the UK, working out at $22.10 or £11.27 per hour in British money.

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