Full-time employees could be up to £1,000 a year worse off in the next four years if there is a backslide on the Nation Living Wage (NLW).
Women, young and older workers are most likely to lose out if the NLW isn’t as flexible, according to new analysis by the Resolution Foundation.
The Foundation’s analysis, based on the latest summary of independent economic forecasts published by the Treasury, shows that the NLW is currently on track to rise to around £8.70 in 2020.
This is lower than the £9 forecast in the March 2016 Budget, due to expectations of weaker wage growth.
With the current NLW, low-paid workers are set for another four years of above average pay rises as it approaches its target ‘bite’ of typical hourly pay by 2020, which could reach an increase of 4.3 percentage points.
However, some businesses have called on the government to water down some its plans following Brexit.
In a recent letter to the Business Secretary Greg Clark, 16 trade associations called on government to “exercise caution” in light of “the economic uncertainties the country faces”, due to the challenge some businesses face of a higher wage floor.
The newer rate of £7.20 introduced in April implemented a 7.5% pay rise to around 4.5 million workers aged 25 and over, which saw a £910 annual increase in earnings for a full-time worker who was currently on National Minimum Wage (NMW).
As the cost of living continues to rise, Prime Minister Theresa May has put tackling this issue at the front of her new government.
Torsten Bell, director of the Resolution Foundation, said: “Theresa May is right to stick to her guns on the National Living Wage. Britain has a serious low pay problem and now of all times is not the moment to put off dealing with it”.
The Foundation says that the in-built flexibility of the NLW, which automatically adjusts to economic shifts by being pegged to typical hourly pay, means that there is no need to water down the policy.
They said: “The Prime Minister should stick to her guns and press on with implementing a policy that will deliver a pay rise for six million workers and support her vision for an economy that works for everyone, not just the privileged few”.
Ahead of a crucial meeting of the Low Pay Commission in October to decide their recommendation for next April’s NLW rate, the analysis shows that should the government scale back its ambition over the next four years, its value would fall by around 55p per hour in 2020.
This would lower the annual pay of a full-time worker on the NLW by around £1,000, relative to current plans. Should the current ‘bite’, its value relative to typical hourly pay, of the NLW be maintained, rather than increased to 60 per cent by 2020, the annual pay would be reduced by £1,500.
Around one in five women and one in five workers aged 26-30 would lose out from any backsliding on the National Living Wage, as would over a quarter of workers aged 66 and over.
The Foundation says that the main focus for the government should now be on implementation. To do this, it is calling for the government’s upcoming industrial strategy and productivity plan to include a focus on the often unheralded low-paying sectors of the economy.
Conor D’Arcy, policy analyst at the Resolution Foundation, said: “The National Living Wage is a hugely popular policy that is set to deliver a pay rise to six million of Britain’s lowest paid workers and play a pivotal role in the Prime Minister’s vision for an economy that works for everyone, not just the privileged few.
“Understandably some businesses are unhappy about a higher minimum wage, particularly amid the post-referendum uncertainty. But backsliding on the government commitment is unnecessary given the in-built flexibility of the policy to adjust to changing economic circumstances. It would also be costly for millions of low paid workers, so the Prime Minister should stick to her guns”.
The Resolution Foundation forecast that in the next four years, around 12% of workers will be earning the National Living Wage, including 19% of women, 19% of 26 to 30-year-olds and 26% of workers aged 66 and over.
Mr D’Arcy added: “The government’s attention should instead turn to the huge task of implementation. This should ensuring that its upcoming industrial strategy includes the less glamorous but hugely important sectors like retail and hospitality, which are at the coalface of Britain’s huge low pay challenge.”