The National Living Wage leaves those in work but facing poverty short changed

Low-paid workers are stuck in a cycle of zero-hours contracts, inadequate wages and the rising cost of living

The National Living Wage has replaced the minimum wage, but will it lead to an improvement in living standards? (Getty Images)

The National Living Wage came into force on Friday and there can be little dispute that for a great many people it will provide a welcome boost to their income. Indeed, it is estimated that close to 2 million individuals currently earning the minimum wage or a little over it will benefit from the changes.

Yet, good news though this may be, questions remain about the degree to which the new basic rate of pay will address the problems faced by people on low wages. For one, the young have been ring-fenced and won’t see a penny more until they are 25. This means that two people doing the same work, with the same level of experience, will earn unequal wages: it is a situation which is likely to breed resentment at the very least, and could potentially hit the productivity of young workers at the very outset of their careers.

This seems fundamentally wrong-headed. It is no wonder that people in their twenties so often feel frustrated with their lot. At every turn, government seems to find a way to clobber those to whom we ought to be giving the greatest encouragement.

Whether it is university tuition fees, poorly paid jobs or an out of control housing market, the young are bearing the brunt of the last decade's financial crisis. No matter that they were at school when the globe plunged into recession, it is they who are being forced to pay the price of their elders’ mistakes.

A broader problem with the new National Living Wage is that it is unlikely to amount to a liveable salary. Assuming an individual worked a 38 hour week, the £7.20 per hour they now receive tots up to around £14,000 a year. It is better than nothing, but is ultimately a desultory amount to be paid for often hard graft in trying conditions.

Meanwhile, average rental prices for property in the UK as a whole have risen to £750 a month and show now sign of slowing. In London, they are twice that. Add in utilities, groceries, travel and other family essentials and it is easy to understand why too many people around the country feel they are trapped in a hopeless situation. In work poverty is a significant problem in Britain, and it plays a significant role in contributing to the large and growing benefits bill paid by the state.

As for buying property, the very idea is fanciful for a growing proportion of the population and a mere £7.20 an hour isn’t going to change things. Even if the government meets its target of building 200,000 new homes a year, research by Savills in November estimated that 70,000 additional households per annum will no longer be able to afford to buy or rent properties at market rate.

Since 2001 the Living Wage Foundation has campaigned for a realistic minimum salary. For 2016 it has held a true living wage to be £8.25 for the UK and £9.40 in London, based on calculations by the Centre for Research in Social Policy. That is a significant step up from the National Living Wage and highlights its inadequacy. Government intends for the National Living Wage to rise above £9 by 2020, but if the cost of living continues to spiral upwards that may feel like a fairly modest increase.

It is hard to over-emphasise the extent of the gap between rich and poor in the UK. Low-paid workers are often stuck in a cycle of despondency involving zero-hours contracts, inadequate wages and rising costs of living. The government tinkers here and there, adding a few pence to the pockets of over-25s working for the minimum possible pay packet, or by building a few houses. But the issues faced by Britain’s economy are much more fundamental than these measures allow – and are not fixed so easily.