The government yesterday raised the minimum wage by 7.5% in a move denounced by critics as largely symbolic in an era of state austerity.
Around 1.8mn employees will benefit from the National Living Wage (NLW).
Workers aged 25 and over will now earn a minimum hourly gross wage of £7.20 compared with £6.70 previously.
“The National Living Wage will play a central role in moving Britain to a higher wage, lower tax, lower welfare economy,” said Finance Minister George Osborne.
“It will also mark the end of the gender pay gap for some of our lowest paid and hardest working people.”
The new increased amount compares with an 8.50 euro minimum wage rate in Germany and almost 9.70 euros in France. In Britain, where unemployment is relatively low at around 5%, large wage inequalities persist and London School of Economics professor Alan Manning described the NLW as “more symbolic” than anything else.
“It’s significant but I don’t think one should exaggerate its significance,” he said.
The NLW will affect just 0.1% of the country’s payroll, while workers under the age of 18 will still earn below £4 an hour as a minimum wage.
The hourly rate of £7.20 is below the amount recommended by the lobby group Living Wage Foundation, which claims that workers aged 18 and over should earn at least £8.25 an hour, rising to £9.40 in London where housing rents tend to be far higher compared with the rest of the country.
“The new legal minimum is an important step forward in tackling low pay in the UK,” said Katherine Chapman, director of the Living Wage Foundation.
“We welcome the news that millions of workers will get a pay rise. However, the job is not done when it comes to tackling low pay,” she said.
“Around 6mn people earn below the voluntary Living Wage in the UK, with women, young people and part-time workers most affected by low pay.”
Workers’ representatives meanwhile stressed that the introduction of the NLW should be seen alongside cuts to welfare payments.
Tim Nichols, senior media officer at the Trades Union Congress - Britain’s biggest union organisation - said “many people on the lowest pay are also reliant on in-work benefits, such as tax credits or housing benefit, to ensure a sufficient minimum household income”.
Nevertheless, the NLW is a notable turnaround for the Conservative Party of Prime Minister David Cameron after it opposed the introduction of the minimum wage in 1999 when Tony Blair’s Labour was in power.
“When they opposed it, they thought the national minimum wage would destroy lot of jobs,” said Manning.
“The minimum wage is often popular with voters who are actually quite conservative on many issues, because many of them think that if people work hard and can’t earn enough to support themselves and their families, there is something wrong with... society.”
Business lobby group the Confederation of British Industry (CBI) gave a lukewarm response to the National Living Wage.
“Companies are committed to raising prosperity and living standards, but for wage increases to be sustainable they must go hand-in-hand with productivity growth,” said Josh Hardie, deputy director-general for policy and campaigns at the CBI.
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