Low Pay Commission publishes National Living Wage Review (2015-2020)

The Low Pay Commission has now published its review of the National Living Wage from 2015-2020. You can read the review as well as its headline findings here.

The announcement of the National Living Wage in 2015 heralded a new era for minimum wages in the UK. The policy aimed to increase pay and productivity without harming jobs, while also reducing spend on benefits. This review collects the evidence on the NLW’s achievements from 2016 up to April 2020, when the National Living Wage reached the Government’s initial target of 60 per cent of median earnings.

The review finds that while the NLW increased wages and did not reduce employment, the increase in earnings did not lead to higher incomes and did not measurably improve productivity. Nevertheless, the growth in earnings helped reduce regional pay inequality and contributed to shrinking gender and ethnicity pay gaps. After the introduction of the NLW, minimum wage workers were less likely to move employers but continued to progress into higher-paid roles at the same rate as previously.

Bryan Sanderson, Chair of the LPC, said:

“As we continue to push the minimum wage towards its new target, it is important we learn the lessons of recent history. This review is a timely reminder of the policy’s achievements, as well as its limitations.

The NLW can be a judged a success in reducing pay inequality, and fears around job losses did not come to pass. Productivity improvements, however, were elusive and the impact on workers’ incomes was tempered by other factors.

The headwinds faced by businesses and workers alike are greater now than at any point since the NLW’s introduction. Today’s report emphasises the need for a balanced and flexible approach in supporting both, of which the minimum wage is an important, but not the only part.”

Alongside the review, we have also published a more detailed paper on the impact of NLW on productivity which you can also access here.

Editors' notes

1. The National Living Wage (NLW) is the statutory minimum wage which currently applies to all workers aged 23 and over. Different minimum wage rates apply to 21-22 year olds, 18-20 year olds, 16-17 year olds and apprentices aged under 19 or in the first year of an apprenticeship.
2. The NLW was first announced in 2015 by the then Chancellor, George Osborne, as a higher rate of the previously existing National Minimum Wage (NMW) for all workers aged 25 and over. It was introduced in April 2016 at an initial rate of £7.20. The policy was informed by an initial target of 60 per cent of median earnings by 2020. The review published today covers the period of this target up to 2020. The Government’s current target for the NLW is to reach two-thirds of median earnings by 2024.
3. The LPC’s recommendations are informed by the Government’s targets but also subject to economic conditions. In the current remit, for example, the Government asks the LPC to “closely monitor developments in the labour market, including the impact of increases to the minimum wage rates, and advise on emerging risks … if the economic evidence warrants it, the Low Pay Commission should advise the government to review the target or its timeframe. This emergency brake will ensure that the lowest-paid workers continue to see pay rises without significant risks to their employment prospects.” The full remit letter is available here [ADD LINK].
4. When the NLW was first introduced, it applied to all workers aged 25 and over. This age threshold was reduced to 23 in April 2021, and will be reduced to 21 by 2024. These reductions follow an LPC review of the structure of the National Minimum Wage youth rates and recommendations in 2019.
5. Rates for workers aged under 23, and apprentices, are lower than the NLW in reflection of lower average earnings and higher unemployment rates. International evidence also suggests that younger workers are more exposed to employment risks arising from the pay floor than older workers. Unlike the NLW (where the possibility of some consequences for employment have been accepted by the Government), the LPC’s remit requires us to set the rates for younger workers and apprentices as high as possible without causing damage to jobs and hours.
6. The National Living Wage is different from the UK Living Wage and the London Living Wage calculated by the Living Wage Foundation. Differences include that: the UK Living Wage and the London Living Wage are voluntary pay benchmarks that employers can sign up to if they wish, not legally binding requirements; the hourly rate of the UK Living Wage and London Living Wage is based on an attempt to measure need, whereas the National Living Wage is based on a target relationship between its level and average pay; the UK Living Wage and London Living Wage apply to workers aged 18 and over, the National Living Wage to workers aged 23 and over. The Low Pay Commission has no role in the UK Living Wage or the London Living Wage.
7. The Low Pay Commission is an independent body made up of employers, trade unions and experts whose role is to advise the Government on the minimum wage. The current Low Pay Commissioners are: Bryan Sanderson (Chair), Kate Bell, Kay Carberry, Matthew Fell, Louise Fisher, Martin McTague, Professor Patricia Rice, Simon Sapper and Professor Jonathan Wadsworth.