Stronger than expected wage growth means the National Living Wage
(NLW) could rise to around £11.46 an hour next April – well above
the £11 suggested by the Chancellor earlier this month, according
to a new Resolution Foundation briefing published today
(Saturday).
The briefing – which uses the Low Pay Commission’s methodology to
calculate what the National Living Wage could rise to next year –
notes that as the NLW is currently pegged to median hourly pay,
strong wage growth in recent months (average weekly earnings grew
by 7.8 per cent in the three months to August) should increase
its cash value next April.
The Foundation’s calculation, which uses the latest pay data
including the Annual Survey of Hours and Earnings 2023 published
earlier this week, implies the NLW will rise to £11.46 an hour
next year, up from the current £10.42. This would be a 10 per
cent increase in cash terms, the third largest percentage cash
increase in the minimum wage during its 26-year history. Based on
the Bank of England’s inflation expectations, it would mean a
real-terms increase of 6.3 per cent, also the third largest in
the minimum wage’s history. Around 1.7 million workers are set to
be benefit directly from annual increases in the NLW.
However, the Foundation cautions that for some low earners, big
rises in the minimum wage over the past decade (between 2013-14
and 2023-24 the adult minimum wage rose by 68 per cent in cash
terms, and 27 per cent in real terms) have been offset by
significant cuts to working-age benefits, which have reduced – or
even eradicated – increases in their overall household disposable
incomes.
The briefing note compares the real disposable income growth for
different types of workers earning the minimum wage, and finds
that shows that a single adult not receiving benefits has seen
their income rise by 20 per cent in real terms over the past
decade. This is significantly higher than a typical working-age
household, which has seen far more modest real income growth of
around 9 per cent over this period.
However, for a single parent with one child receiving benefits
and earning the minimum wage, their pay gains have been offset by
welfare cuts, notably the four-year cash freeze in working-age
benefits from 2015-16. As a result, their real income has risen
by just 4 per cent over the past decade. The situation is starker
still for a NLW earner with three children, where the addition of
the two-child limit on benefits introduced in April 2017 has
meant that their income has fallen by 3 per cent in real terms
over the past decade.
The Foundation says that these very different income trajectories
are a strong prompt to policy makers to look at the bigger
picture when it comes to supporting low earners, and low-income
families. Increases in the NLW should be complemented by a
stronger social security safety net so that families can fully
enjoy the living standards benefits of higher hourly pay.
Nye Cominetti, Senior Economist at the Resolution
Foundation, said:
“Earlier this month, the Chancellor announced that the National
Living Wage would rise to at least £11 an hour next April. This
looks to be a rare case of a politician under-promising, as the
actual rate is more likely to be around £11.46. This would be a
huge pay increase that will help millions of low earners as they
navigate the cost-of-living crisis.
“However, a higher minimum wage alone cannot deliver higher
living standards for everyone. Over the past decade, cuts to
working-age benefits have offset the gains from the National
Living Wage for many. Low-paid families with children in receipt
of benefits will have experienced next to no, or even negative,
income growth over this period, despite their hourly pay rising
by 27 per cent in real terms.
“A strategy to boost the living standards of low earners must
combine a higher minimum wage with better conditions at work and
a stronger social security safety net as well.”
Notes to Editors
- The £11.46 estimate of the 2024 National Living Wage rate
above is the RF’s estimate based on the Low Pay Commission’s
normal methodology for uprating the minimum wage, considering
their target of reaching two-thirds of median hourly pay. The
actual 2024 NLW rate will not be exactly this number, because the
LPC have access to slightly different pay data, and because they
could decide to use a different uprating approach than they have
used in the past.
