National Living Wage has made 'little change' to poorest's living standards, says top thinktank
2 min read
The introduction of the National Living Wage two years ago has so far failed to significantly lift the living standards of low paid workers, a major report has revealed.
The rebrand of the compulsory minimum wage in April 2016 saw the base level of pay for over-25s jump from £6.70 to £7.20.
However the Institute for Fiscal Studies (IFS) has found that while pay growth for the lowest-paid fifth of employees rose by 6% between 2015‒16 and 2016‒17, higher tax payments and a cut in benefit entitlements partly contributed to living standards rising by by just 0.4%.
The meagre lift in overall household incomes is also down to the fact that earnings of low-paid employees are, on average, only a small fraction (32%) of their total household income, they say.
The overall pay in households with higher-earning partners fell in 2016‒17, therefore suppressing average living standards.
Yet elsewhere, low-paid employees in households with below-average incomes saw their pay rise by 2% in 2016–17, contributing to an overall reduction in income poverty.
The report also found that hourly pay since the introduction of the NLW has been “far faster” for the very lowest-paid workers, at up to 7%, than those in the median earnings bracket, at 2%.
The figures come as part of the IFS’ flagship annual report on living standards, inequality and poverty.
Research Economist at the IFS and an author of the research, Agnes Norris Keiller, said: "The wages of low-paid employees have grown strongly since the introduction of the National Living Wage but improvements in their average living standards have been much more modest.
"In part this is because the pay of higher-earning partners fell in 2016‒17.
"However, low-wage employees who live in households with below-average income did tend to see growth in their living standards, reflected in falls in poverty."
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