UK voluntary Living Wage rise welcomed, but caution on inflation

Kicking off Living Wage Week, the Living Wage Foundation has announced the UK’s new voluntary national Living Wage rates of £8.45, rising to £9.75 for London.

London City Hall spiral staircase
The voluntary rate set by a group of organisations, businesses and campaigners is independently calculated and applies to all workers aged 18 and over.

What is the official National Living Wage and the voluntary rate?

The voluntary real Living Wage rates are around 17 per cent higher than the government’s official National Living Wage (NLW) for over 25s of £7.20 because they are calculated to meet the cost of living, not the 60 per cent of median earnings target. The official National Minimum Wage (NMW) is the minimum legal wage rate payable, tiered by employee age.

Companies signing up to voluntary real Living Wage

Close to 3,000 employers across the country have pledged to pay people the voluntary rates.The number was swelled yesterday with announcements at the start of 2016's Living Wage Week from Everton Football Club, the British Library, RSA Insurance, Curzon Cinemas and DLA Piper International they would join other employers across the country in playing the real living wage rate.Katherine Chapman, director of the Living Wage Foundation, commented: “One in five people earn less than the wage they need to get by. That’s why it’s more important than ever for leading employers to join the growing movement of businesses and organisations that are going further than the government minimum and making sure their employees earn enough to cover the cost of living.”

Pay and reward for employers of choice

Making the employers’ case for signing up to the real living wage agenda, Stuart Wright, Aviva PLC, group property and facilities director, and chair of the Living Wage Advisory Council said: “Everyone working at Aviva in the UK, whether they are a permanent employee or an on-site contractor receive at least the real living wage.“We made this commitment because it is the right thing to do. And because it is also good business. We want to be an employer of choice, which helps us to protect the long-term success of our business.

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“But we also know that paying the Living Wage is good for our industry and business at large – employers who pay a fair wage have a multiplier effect, because as ambassadors they help encourage other businesses to do the same.”Paying the real Living Wage will create a better, stronger and ultimately a more successful company for our customers, our people and the communities we are a part of.”

Challenges of paying the voluntary Living Wage

Yet, the latest round of economic data and forecasts may make it more difficult for companies wanting to pay more than the minimum.Responding to the latest rise in the voluntary real Living Wage rates, Dr Angela Wright, senior lecturer in human resource management at Westminster Business School, said: “The rise in the voluntary Living Wage rates announced today will pose a real challenge to employers in low paying sectors such as retailing, caring and hospitality.“Recent research commissioned by the Living Wage Foundation shows that most organisations paying the voluntary Living Wage had low numbers of people earning at less than these rates.“When the benefits of the higher pay rates – principally, positive reputational value and higher productivity – do not outweigh the extra costs, then organisations may not sign up to the voluntary living wage."

Reputational dividend? 

“While companies may be able to restructure their reward offering to reduce costs – for example, by consolidating overtime pay or other additional payments into the higher basic pay rates – much of the debate in boardrooms is likely to focus on whether the positive effects on their reputations is worth the much higher extra costs they will incur," Dr Wright continued.“The Bank of England Governor Mark Carney recently warned that ‘it is going to get difficult’ for those on low incomes as inflation rises, particularly with respect to food costs.“This will put additional pressure on employers as they consider how to cope with both the rises in the national minimum pay, and demands from their low-paid employees for salary rises to get them closer to the voluntary living wage rates.”

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