The government will introduce what it has called a national living wage for workers aged 25 and above from April 2016, George Osborne announced in the budget statement.
The new wage floor, which will be binding on employers, will be created by adding a premium on top of the national minimum wage, bringing hourly rates of pay up to £7.20 from April next year.
This announcement is likely to be welcomed by the UK’s 930,000 frontline care workers, two-thirds of whom are currently being paid below the existing living wage of £7.85 per hour (£9.15 in London), according to estimates published by think-tank, the Resolution Foundation, earlier this year. The official living wage is set independently in line with the cost of living; by contrast, the government’s national living wage will be set in line with average earnings.
The government’s policy will require the Low Pay Commission to set the living wage at a level that reflects the average UK earnings, a concept set out by the Resolution Foundation in 2014.
This means the Commission will have to determine how the national living wage will ensure the low paid earn at least 60% of the median earnings by 2020, in order to achieve the government’s target of £9 per hour.
The government will also increase the employment allowance for National Insurance contributions from £2,000 to £3,000 in April 2016, in order to help businesses meet the increased cost of paying their staff the new wage, Osborne said.
‘Attractive at first glance’
Dave Prentis, general secretary for Unison, expressed concerns that the proposed hourly rate of £7.20, which is 65p less than the existing living wage, was unfair.
“George Osbourne’s announcement might look attractive at first glance, but as tax credits are cruelly snatched away – leaving many workers £1,200 worse off – he’s simply giving to the low-paid with one hand and taking away with the other,” he said.
“An independently set living wage already exists, and its higher rates assumes the full take up of in-work benefits. Renaming the minimum wage will mean fewer employers will feel obliged to pay staff any more than the law requires them to.”
Colin Angel, policy and campaigns director at the UK Homecare Association, said the policy would have a significant impact on the cost of home care.
“Whilst employers are responsible for meeting the increased cost, the vast majority of home care services are purchased by local councils, who have an extremely poor record of increasing their fees in response. The impact of constrained public spending by councils has been subject to repeated criticism from the Low Pay Commission,” he said.
“We call on government in each UK administration to ensure that the statutory sector is adequately funded to meet these additional costs, and to monitor effectively how such funding is passed on to employers. It is vital to ameliorate the negative impact on an increasingly under-funded sector, and to achieve better conditions for the home care workforce in a sustainable way.”
Caroline Abrahams, charity director at Age UK, added: “The living wage will provide a really important boost to care workers, but unless the overall budget for social care provision is also increased we fear more and more older people will miss out on support they badly need.”
‘Public sector pay’
The budget statement also included the government’s plans to cap wages for the public sector workforce at just 1% for four years from 2016.
The 1% pay limit will not be binding on local government employers but government funding for local authorities will be set on the assumption that annual pay rises are capped at 1% on average.
Osborne said that the government needed to ‘continue to take tough decisions’ on public sector pay and the new measure would save approximately £5bn by 2020.
Unison’s Prentis added: “Britain won’t have public services fit for 21st century needs, unless wages for public servants are high enough to attract the best recruits. Pay austerity might be over for MPs but it is set to continue for many more years for everyone else in the public sector.”
The chancellor also announced a £30-a-week cut in employment benefits for disabled people capable of work-related activity, sparking anger from disability charities.
The level of employment and support allowance (ESA) for people placed in the “work-related activity group” will be reduced to the level of jobseeker’s allowance (JSA) for new claims after April 2017. JSA is currently worth £73.10 a week for people aged over 25, while ESA is £102.15 for people in the work-related activity group – those assessed as being capable of work in the future.
“Cutting this essential payment to the bare minimum will prevent people seeking work effectively and fly in the face of the Government’s aim to halve the disability employment gap,” said Rob Holland, parliamentary lead at Royal Mencap Society and co-chair of the Disability Benefits Consortium.
“Many disabled people have been put in this group because they have long term health conditions which prevent them from working for a certain amount of time. Those who are in this group will often only receive it for a limited time only.”
He added: “Putting pressure on the incomes of disabled people at a time when they need the extra money because they’re too unwell to work can make it less likely they would be fit enough to work in the future.
“The cut will hit households with a disabled person hard – a third of whom are living below the poverty line. Furthermore official Government figures show that the number of disabled people living in poverty has increased by 300,000 over the last year. The cut must also be seen in the context of other cuts and freezes to support for disabled people, their families and carers such as housing benefit, tax credits and social care.
“The Government must act to address this and tackle the long term economic disadvantages disabled people face. Support for disabled people, their families and carers must be protected.”
The higher rate of ESA, which is for people deemed unable to work and is currently worth £109.30, will not be cut and will rise in line with inflation each year.