Voluntary living wage increases by 4.8% to £14.10

The voluntary living wage (VLW), which is overseen by the Living Wage Foundation and often termed the ‘real’ living wage, today rose by 4.8% to £14.10. Meanwhile in London the rate now stands at £15.45, an increase of 4.4%. This represents the lowest uplift in the VLW since 2021, following several years of high inflation after the pandemic and resulting increases in the cost of living. Accredited Living Wage employers, of which there are now almost 17,000, have until 1 May 2027 to implement these increases, although they are encouraged to do so as soon as possible.

As well as direct employees aged 18 and over, the rates also cover outsourced staff such as cleaners and security guards working indirectly for accredited organisations. The Foundation estimates that approximately half a million people will benefit directly from these increases but in practice the true figure is likely to be higher as some employers in low-paying sectors, who may not seek full accreditation for logistical or future affordability reasons, also reference the VLW when setting pay rates.

The VLW is particularly influential in certain sectors. In higher education, for example, many institutions are accredited employers and the figure also influences negotiations over the national pay spine. Indeed, recent rapid increases in both the VLW and the legal minimum, the National Living Wage (NLW), have prompted a review of this spine.

New methodology for 2026/27

The level of the VLW is calculated by economists at the Resolution Foundation, an independent think tank, on behalf of the Living Wage Foundation and overseen by the Living Wage Commission, a forum consisting of Living Wage-accredited employers, trade unions, civil society and independent experts. Since 2016, the calculation has been based on a basket of goods and services that draws on the Minimum Income Standard (MIS) to identify the everyday living costs that underpin an acceptable standard of living (for more information on the MIS, see last year's post on the VLW increase). A ‘shock absorber’ of CPI inflation +/-3% is in place to cap the level of annual uplifts at a manageable level for small businesses.

This year, the methodology for calculating the VLW has been revised, prompted in part by the fact that the last three successive years of calculations had had to invoke the shock absorber due to sharp increases in the MIS. The Living Wage Commission wanted to reduce reliance on the shock absorber and achieve increases that track closer to inflation and minimise volatility while ensuring VLW rates would be sustainable in the labour market.

The new methodology retains the reference to the MIS to calculate the cost-of-living element but also incorporates an in-work poverty element, derived from family-specific poverty thresholds (60% of median incomes) taken from the official Households Below Average Income (HBAI) dataset. In this respect, the calculation might now be regarded as somewhat closer to that used for the NLW, which uses the benchmark of two-thirds of median earnings as its key reference point. The final rate represents the weighted average of wage rates calculated for 17 different family types, with two separate calculations for London and the rest of the UK.

This new blended approach has resulted in a lower percentage increase than in recent years, with upward pressure from the cost-of-living element (based on MIS data) offset by the inclusion of the in-work poverty threshold. According to the Resolution Foundation, some costs such as Council Tax have risen faster than inflation while policy changes such as new childcare entitlements, a 6.2% increase in Universal Credit, and the elimination of the two-child limit for Child Benefit all contributed downward pressure on the VLW rate.  

What will happen to the National Living Wage?

The VLW is distinct from the National Living Wage (NLW), which is the statutory minimum pay rate for people aged 21 and over. The NLW currently stands at £12.71 and is uprated each April. In recent years, the government’s remit for the Low Pay Commission, which recommends the NLW rate, has been to maintain the current benchmark of two-thirds of median hourly earnings as the key reference point while also having regard to labour market conditions, the cost of living, the impact on businesses and competitiveness and wider macroeconomic conditions – most of which factors also have a role in the calculation of the VLW. Back in April, the Commission was forecasting that the rate needed to stay at two-thirds of median hourly earnings would be in the range of £13.02 to £13.34 with a central estimate of £13.18, representing increases of 2.4% to 5.0% (and a central estimate of 3.7%). However, it stresses that economic forecasts are inherently uncertain and as such these numbers may have changed. It is anticipated that next year’s NLW rate, which will come into effect on 1 April 2027, will be confirmed at the Autumn Budget on 28 October.