Living wage rises to £7.85, but 5 million workers still underpaid

The national living wage has been raised by 20p to £7.85 per hour, benefitting up to 35,000 workers in the UK.

It is now 21 per cent higher than the national minimum wage, which was increased to £6.50 last month. The rise in the London living wage, which is higher, is expected to be announced later today.

Companies who are committed to paying their employees the living wage include Barclays, Transport for London and ITV as well as many charities and local councils. The number of businesses paying the rate has doubled in the last year, according to the BBC.

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While the rise has been welcomed by campaigners, a new report by the accounting firm KPMG found that than one fifth of all workers in the UK earn less than the living wage. Women, young people and those working in the hospitality sector are said to be disproportionately affected.

"Far too many UK employees are stuck in the spiral of low pay, Mike Kelly, chair of the Living Wage Foundation told The Guardian. "With the cost of living still high, the squeeze on household finances remains acute, meaning that the reality for many is they are forced to live hand to mouth."

Rhys Moore, director of the foundation, said low pay continues to put pressure on public funds, as "firms that pay the minimum wage are seeing their workers’ pay topped up through the benefits system".

What is the living wage?

The living wage was introduced in the last decade after a campaign to help families who were struggling to make ends meet despite working two or more minimum wage jobs. It takes into account the average costs of housing, council tax, transport and food. Unlike the minimum wage, the living wage has no legal force. It is paid by employers on a voluntary basis and is a recognised sign of good employment practice. The national living wage has been set annually by the Centre for Research in Social Policy at Loughborough University since 2008, while the London living wage has been set each year by the Greater London Authority since 2005.

The living wage report:

Earlier this year, the Living Wage Commissionled an inquiry into the future of the living wage. The commission wants to see the gradual introduction of a living wage in sectors that can afford it and believes this could be tackled without any damaging economic consequences. Accountancy, consultancy, banking and construction firms could afford to pay the living wage as it would add less than 0.5 per cent to their pay bills, it says. Raising the pay of 600,000 private sector employees to the living wage would in turn raise tax revenues and reduce in-work benefits, allowing a further 500,000 public sector workers to be paid the living wage. However, the commission rejects the idea of imposing a living wage through legislation, acknowledging that the retail sector, hospitality sector and many small companies could not afford it. It did suggest that ministers could force companies to declare whether they pay a living wage to make consumer boycotts easier to organise.

Will the government go for it?


Business secretary Vince Cable has said that the government supports businesses that voluntarily pay the living wage "where it is affordable and doesn’t cost jobs". However, he said that the living wage "does not take into account the effect rises in wages might have on the job opportunities of the lowest paid". Chuka Umunna, Labour’s shadow business secretary, said the report makes "a powerful and timely case for tackling the growing scandal of low pay". He said a Labour government would push for bigger annual rises in the minimum wage and offer employers a 12-month tax break worth up to £1,000 for each worker if they agree to pay the living wage.

Who supports the living wage?

London mayor Boris Johnson is a champion of the living wage, insisting that it is "not only morally right, but makes good business sense too". Charities such as Save the Children have echoed calls for more families to be paid the living wage, while Citizens UK – the organisation that first began campaigning for the living wage – has called on employers to "stop and think" about workers being pushed into poverty. Frances O’Grady, general secretary of the TUC, warns that workers are "struggling to get by" as wages continue to lag behind the cost of living. "Increasing the number of workers on the living wage would help ensure that ordinary people can start to share in the fruits of the economic recovery," she said.

Who is against the living wage?

Few politicians and business leaders are against it in principle, but many have warned that it should not be enforced by law. Dr Adam Marshall, director of policy and external affairs at the British Chambers of Commerce, said employers should be encouraged to increase wages "without facing compulsion or regulation, which could lead to job losses and difficulties, particularly for younger people entering the labour market". Alexander Jackman, head of policy at the Forum of Private Business, told BBC Radio 5 live that the Living Wage Commission's proposals would increase the burden just as other costs were being imposed on small firms. "We are barely out of recession... and other cost pressures are coming down the line," he said.