The Government has announced the National Living Wage (NLW) and National Minimum Wage (NMW) rates which will come into force from April 2021. It accepted in full recommendations made by the Low Pay Commission at the end of October.
The Low Pay Commission (LPC) is an independent public body that advises the Government each year on the National Minimum Wage (NMW) and National Living Wage (NLW). The LPC is a social partnership body, made up of nine Commissioners; three from employer backgrounds, three from employee representative backgrounds, and three independents, including the Chair.
Bryan Sanderson, Chair of the Low Pay Commission, said: ‘Recommending minimum wage rates in the midst of an economic crisis coupled with a pandemic is a formidable task. The difficulty in looking forward even to next April is daunting. There are strong arguments concerning both low-paid workers – many performing critically important tasks – and the very real solvency risks to which small businesses are currently exposed. In these unprecedented conditions, stability and competence are prime requirements.’ The Government made clear that the economic conditions were to be taken into account and, if the evidence warranted, recommend they reviewed their target or time-frame. This mechanism was referred to as an ‘emergency brake’.
Unique Challenges
The LPC says there is no easy recommendation to make this year, in response to the economic shock of the effects of the pandemic. It recognises: ‘both workers and employers have been hit by the economic crisis and there are powerful arguments both that workers need a pay rise, and that employers are facing an exceptionally tough situation that raises the threat of unemployment. Added to this, the speed of economic change and level of uncertainty over the future is unprecedented. The lag between giving advice in October and the rate applying (April 2021) takes on far greater significance this year, and a wide range of economic scenarios are possible up to April 2021.’
This year both employer and worker representatives alike have been arguing for support for their members, working with the Government on the design of support programmes and helping their members navigate the support available. In some cases, the representative bodies themselves have been fighting for their own survival.The bulk of the evidence taken into account goes up to August 2020, when parts of the economy had only just reopened, at a time that outcomes for workers furloughed on the Coronavirus Job Retention Scheme (CJRS), as yet unknown.
Taken into consideration in the NLW and NMW adjustment recommendations for April 2021 the LPC quotes the strain on low-paid workers and businesses who are struggling to survive. Many low-paid workers are key workers, particularly in retail and social care, difficulties in continuing to work through the depths of the pandemic. For others, furloughed workers’ lost income, forced life changes, job uncertainty are cause for great concern. Another less visible but endemic difficulty, are examples of workers feeling forced into poorer terms and conditions, with their employers blaming the crisis. Employers are quoted to be struggling with deep uncertainty since March, particularly smaller businesses. The structural shifts facing retailers have accelerated as well as forced closure for the hospitality sector during what should be the most profitable period of the year. And the intensity of the funding crises in many publicly-funded sectors from social care to childcare, as well as leisure and the arts.
Introduction of the National Minimum Wage
The National Living Wage was introduced in April 2016, as the statutory minimum wage for workers aged 25 and over. For the first time, the NLW introduced a target for increases in the minimum wage. The National Minimum Wage was introduced on 1 April 1999. Since then, it has risen faster than average earnings and inflation without apparently damaging jobs. Previous to this The National Minimum Wage had far from universal support. It was widely assumed that any minimum wage would lead to the loss of jobs. Yet the idea of a NMW gained support in the Labour Party. The NMW is reviewed every April and is decided with the advice of the independent low pay commission, according to the economic circumstances of the time as opposed to a rigid formula. The Low Pay Commission was formed in July 1997 by the Blair Government, which set up the and passed the National Minimum Wage Act in July 1998.
A rise in National Living Wage from 6 April 2021
The national living wage will be extended to 23 and 24-year-olds for the first time from April 2021. Previously, it only applied to people aged 25 and over. This rate will revive a 19p increase, from £8.72 to £8.91 per hour. This represents a 2.2 per cent rise, in line with inflation. The original plan was for the living wage to increase by 5.6 per cent, to £9.21 per hour. Boris Johnson pledged to give the lowest paid their “biggest ever cash boost” during the 2019 general election. However, the Low Pay Commission advised the Chancellor to make a U-turn on this, saying it would have a negative effect on businesses already struggling to stay afloat during the Covid-19 pandemic.
New hourly rates
Age 23 or over (national living wage rate): GBP 8.91 (up 2.2% from GBP 8.72)
Age 21 to 22: GBP 8.36 (up 2% from GBP 8.20)
Age 18 to 20: GBP 6.56 (up 1.7% from GBP 6.45)
Age 16 to 17: GBP 4.62 (up 1.5% from GBP 4.55)
Apprentice rate: GBP 4.30 (up 3.6% from GBP 4.15)
The increase in the NLW will mean that low-paid workers’ incomes rise broadly in line with predicted wage growth; and modestly ahead of projected increases in prices, meaning low-paid workers’ living standards should be protected. Commissioners do not believe the increase presents a significant additional risk to employment prospects, beyond the already challenging outlook.
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