With young people left out, the National Living Wage will only worsen inequality between the generations

Businesses must pay even higher wages, especially to young people, to tackle poverty and inequality - but with the smokescreen of a "National Living Wage" they might find it harder than ever to get employers on side

Barbara Kasumu
Friday 01 April 2016 10:48
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George Osborne introduced the National Living Wage to tackle inequality - but it leaves young people behind.
George Osborne introduced the National Living Wage to tackle inequality - but it leaves young people behind.

Finally, the new living wage comes into force. As part of the government’s measures to alleviate poverty and tackle inequality, from today the minimum wage is replaced with the National Living Wage, which now sits at £7.20 an hour.

On the surface this is a great move – a basic wage that means that living standards are raised for everyone, and inequality is reduced. At least, that’s the theory. And, as is so often is the case, theory and reality do not go hand in hand. The policy will, in fact, entrench inequality between the generations.

Young workers will not benefit from the introduction of the rate. For those under 25, minimum wage rates will still apply – £6.70 for workers aged 21 and over, £5.30 for those aged 18-20 and £3.87 for those aged between 16 and 17. While those receiving the new living wage can expect their incomes to increase by 25 per cent to £9 per hour within four years, young people on the minimum wage have no such guarantees.

At a time when we face very real problems with youth unemployment – the unemployment rate for 16-24 year olds was 13.7 per cent at the beginning of January 2016, more than double that of the overall unemployment rate – this seems like a strange solution.

To complicate things further, the government has confusingly (although cleverly) called this new measure a “living wage”. It’s important to be clear that this is not the same as, nor does it replace, the Living Wage as calculated independently by the National Living Wage Foundation – a figure which is based on the real cost of living in the UK. The current living wage is £9.40 per hour in London and £8.25 in the rest of the country, but there are just 2,300 accredited Living Wage employers in the UK.

So, based on current rates, people earning the real living wage will still receive an additional £1.05 per hour compared to those earning the government’s National Living Wage today. Over the course of a year, an average worker aged over 25 on the Living Wage would receive an additional £2,167.62, compared to a worker on the new government rate.

To add insult to injury, young people below the qualification age for the new rate are at a double disadvantage even though they will still be disproportionately affected by low pay and employment outcomes, especially when seeking entry-level roles.

Of course any increase in minimum wage packets is a welcome move, but it should not distract us from the serious problems of poverty and inequality. The real living wage must remain the target for employers if we’re to make any real headway. This doesn’t necessarily have to be difficult for businesses. It could constitute a commitment based on a particular threshold of staffing or in line with revenue thresholds, reviewed annually.

To really make a difference to quality of life, the government must do more to encourage larger firms to pay the real living wage – one which is in line with the cost of living. However, with the smokescreen of a "National Living Wage", they might find it harder than ever to get them on side.

Barbara Kasumu is co-founder of the social enterprise Elevation Networks

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