Does National Living Wage mean ker-ching or tighter purse strings?

Approximately 1.6m public sector workers were given a pay rise last year after the government rolled out the new National Living Wage (NLW). The change meant workers aged 25 or over were entitled to at least £7.20 an hour and that figure will rise by 30p in April. Victoria Short, managing director of Randstad public services, explains why the NLW is a double-edged sword.

 

Public sector pay stagnated

 

“We all like to have a little bit more money in our back pocket but for many public sector workers the reality is that their pay in recent years stagnated in real terms. Since 2012, average public sector salary increases have been capped at 1%, which when you consider the impacts of inflation left workers at the bottom end of the pay scale with little left over.


“You can imagine workers’ joy then when the government introduced a new National Living Wage last year that bumped pay for those aged 25 and over to at least £7.20 an hour. The change applied to around 1.6m people giving them a 10.8% rise over the year."

 

National Living Wage rippled beyond low-paid workers

 

"Today, one third of social care workers are at £7.20 compared to a fifth that were on the lower National Minimum Wage before. It wasn’t just low-earning workers who benefited, either, as the introduction of the living wage created a ripple effect that led to pay hikes for a quarter of all UK employees aged 25 or older: ker-ching!


“If workers are the winners from the change, employers’ prospects are more uncertain, especially in the public sector where funding is an issue. Care providers, for example, usually sign fixed contracts with local authorities and do not have the increases included."

 

Like with Brexit, it’s too early to judge NLW


“This in turn has led to providers making up the shortfall themselves and rushing to exit non-profit making deals. As a result, the Low Pay Commission found employment and hours had shrunk slightly in social care.


“Like with Brexit, it’s too early to say what impact the NLW will ultimately have but with promises it will reach 60% of median earnings by 2020, public service providers should consider retaining workers while scrutinising budgets. Meanwhile, council tax increases to pay for care workers would help relieve funding pressures but they're unlikely to be the silver bullet.”


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