The National Living Wage in 2020 and beyond

When the National Living Wage (NLW) was first launched in 2016 it was with the objective that it would increase to 60% of forecast median earnings by 2020. This trajectory has so far been maintained, resulting in increases of around 4% each year to date, but the path for the post-2020 NLW is less clearly defined. We look at the likely scenarios presented by various sources.

While the NLW has so far maintained the course that was set for it, weaker earnings growth than expected has seen its projected value fall from £9.00 at its introduction to £8.67 today, according to the latest forecasts from the Low Pay Commission (LPC), which makes recommendations to the Government on the level of the minimum wage. This is slightly up from the £8.62 the LPC forecast in its 2018 report. The Government’s Office for Budget Responsibility (OBR), meanwhile, forecasts that the NLW will be £8.63 in 2020 and if the target level of 60% of median earnings is maintained after this date, it is likely to reach £9.49 in 2023, with a corresponding NMW rate of £8.70 (see chart).

In his 2018 Budget, the Chancellor announced an ‘ultimate objective of ending low pay in the UK’ that would potentially see the NLW increase to 66% of median earnings (the threshold for relative low pay as determined by the Organisation for Economic Co-operation and Development). This would take the NLW to a projected level of £9.61 if implemented next year. The Government would seek to protect employment for lower-paid workers as part of the process of making this change and is proposing to engage with employers, the TUC and the LPC to this end. It also recently commissioned an academic review of the international evidence on the impacts of minimum wages. The LPC’s post-2020 remit is set to be confirmed in this autumn’s Budget and this will indicate the likely future path of the statutory floor, at least as long as the current administration remains in office.

The Labour party, meanwhile, has announced that it would increase the NLW to £10 in 2020 and eliminate lower ‘youth’ rates for under-25s (apart from those for 16 and 17-year olds), applying the new higher rate to all employees aged 18 and over. A general election could take place as early as later this year, or in the first half of next year, and while there is no guarantee that the Labour party will form the next administration (either by itself or in coalition with smaller parties), its intervention is further shaping the prospects for the statutory floor.

If implemented, the policy means that the NLW would move ahead of the independently-calculated ‘real’ or voluntary living wage, which is based on judgements of the wage required to deliver a broadly socially acceptable standard of living and is currently £9 an hour, with the next increase in this measure due to be announced in the first week of November 2019.