Thousands of workers benefit from a rise in the ‘living wage’

Posted by Michael Bolt in Personal Finance on 12 November 2014 - Michael worked as a Credit Analyst at checkmyfile until 2015

The UK ‘living wage’ has increased by 20p to £7.85, a rise which is set to benefit approximately 35,000 workers.

The living wage is a voluntary hourly wage rate based on the amount needed to cover the basic cost of living in the UK and is set on an annual basis by the Living Wage Foundation. It is distinct from the compulsory National Minimum Wage, which is currently set at £6.50 an hour for people over 21 years of age.

Following the recent rise in the living wage, it now stands at some 21% higher than the compulsory national minimum wage. Additionally, the London living wage has also increased to £9.15 an hour from £8.80, representing a 4% increase.

Calculated by the Centre for Research in Social Policy at Loughborough University, the UK living wage is an informal benchmark and does not represent an enforceable pay rate like the minimum wage does. The London living wage, on the other hand, is calculated distinctly by the Greater London Authority. It is designed to provide a relatively basic but decent standard of living for its recipients.

The living wage has now been adopted by a thousand employers across the country including a range of employers from Barclays to Transport for London. It is expected that the increase in the living wage could benefit as many as 35,000 people.

Figures released by Citizens UK, the alliance behind the living wage campaign, shows that the number of employers that pay the living wage rate has doubled in the past year.

Despite the increase in the number of firms paying its employees the living wage, a recent report by the accountancy firm KPMG has found that more than 22% of the working population earn less than the 2013 living wage rate (£7.65 an hour). This equates to some 5.24m workers earning less than the living wage threshold. Younger workers, women and those who work part time were found to be more likely to earn less than the living wage rate, according to the statistics released by KPMG.

The move to increase the living wage has not been welcomed by all, with some business groups having voiced their concerns. The Institute of Directors says that it would rather focus on keeping people in employment, even if it meant lower wages. It has also warned that some employers may struggle to pay it.

Rhys Moore, director of the Living Wage Foundation, says low pay is a strain on the public purse, as "firms that pay the minimum wage are seeing their workers' pay topped up through the benefits system".

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