News story

Today Britain gets a pay rise, thanks to the National Living Wage

National Living Wage of £7.20 per hour comes into force for workers aged 25 and above.

The National Living Wage comes into effect today

First announced by the Chancellor in his Summer Budget last year, the new National Living Wage delivers a key part of the government’s plan to move towards a higher wage economy.

In some parts of the country, a fifth of the entire workforce will benefit directly from today’s increase. It will mean a £900 cash increase for a full-time worker on the current National Minimum Wage and by 2020, 2.9 million workers are expected to benefit directly. The Office for Budget Responsibility (OBR) estimating that in total, up to 6 million people could see a pay rise as a result of a ripple effect causing pay to rise further up the earnings distribution.

To coincide with the day the National Living Wage comes into effect, new analysis launched by the Chancellor today (1 April 2016), also demonstrates that the measure will provide a particular boost for women across Britain. It shows that the new National Living Wage is expected to eradicate the gender pay gap for the lowest paid by 2020. This analysis demonstrates how the National Living Wage will move Britain an important step closer to achieving the government’s ambition to end the gender pay gap for all working people within a generation.

From today, the National Living Wage will give around 900,000 women and half a million men an immediate pay rise in their hourly earnings. By 2020 this translates to 1.9 million women and 1 million men directly seeing a rise in their pay. The gender pay gap at the 10th percentile of the earnings distribution – including those working part-time – is expected to fall from 5.6% currently to zero by the end of the decade. Over the next five years women earning the National Living Wage will see their pay rise by over a quarter and growing more than 1.5 times faster than the salary of an average worker.

This builds on the government’s efforts to back women at every stage of their lives, where significant progress has already been made. More women in work than ever before as well as the lowest gender pay gap since records began.

The government has also committed to providing 30 hours of free childcare a week for working families with 3 and 4 year old children, extended the right to request flexible working to all employees, and introduced a new system of flexible parental leave. It has also moved to ensure employers do the right thing by insisting that all large employers publish their gender pay gap.

The Chancellor said:

I said last year when I announced plans for the National Living Wage that Britain deserved a pay rise. Today, I’m proud to say Britain is getting one.

So I’m delighted that 1.3 million people across Britain will benefit from the biggest wage increase in eight years thanks to the new National Living Wage.

The National Living Wage will play a central role in moving Britain to a higher wage, lower tax, lower welfare economy. It will also mark the end of the gender pay gap for some of our lowest paid and hardest working people.

HM Treasury analysis

Estimates of the numbers of men and women directly benefiting from the National Living Wage are HM Treasury calculations based on Office of Budget Responsibility (OBR) forecasts available as a supplementary document to the March 2016 Economic and Fiscal Outlook.

HM Treasury calculated the pay gap between men and women at the 10th percentile of the distribution of hourly earnings excluding overtime, for all employees – both full-time and part-time – aged over 15. The current value for this pay gap was directly calculated using data from the Annual Survey of Hours and Earnings 2015. To estimate the impact of the National Living Wage (NLW) in 2020, the percentage difference between the projected NLW and National Minimum Wage (NMW) in the relevant year was applied to the 2015 NMW. The effect of the NLW on the earnings distribution was then estimated by assuming all those eligible for the NLW (workers aged 25 and over) who would otherwise have been earning between the NMW and the NLW instead earn the NLW. No spillover effects were assumed. The gender pay gap at the 10th percentile was then calculated for this estimated distribution.

The estimate of pay growth for women on the NLW in relation to that of the average worker over the next five years, compares the growth in the NLW, from £7.20 an hour in 2016 to £9.00 an hour in 2020, to the OBR’s March 2016 forecast for average hourly earnings growth over the same period. The forecasts for both the National Living Wage and average hourly earnings are available as supplementary releases to the OBR’s March 2016 Economic and Fiscal Outlook.

Published 1 April 2016