Budget 2021: London charities say new minimum wage won’t cover rising cost of living

Chancellor Rishi Sunak announced a rise in the national living wage ahead of today’s budget, but London charities and think tanks say this won’t offset the cost-of-living increases.

The increase in the minimum wage, recently rebranded as the national living wage, for those aged 23 and over, is set to rise by 6.6% , from £8.91 per hour to £9.50.

While people aged 21 to 22 will see an increase from £8.36 to £9.18 an hour.

Apprentices, who must be aged 16 or over and not in full-time education, will get a rise to £4.81 an hour.

These changes will come into effect next April.

Mr Sunak said the increase “ensures we’re making work pay and keeps us on track to meet our target to end low pay by the end of this Parliament”.

However Joe Cole, a project manager for Advice for Renters in London, says that the pay increase is just going to be “swallowed up”.

“The rise in the minimum wage whilst welcome to many won’t really offset the cost-of-living increases, the cut in universal credit increases and of course the stealth tax rise on low earners – the National Insurance increase,” Mr Cole told LondonWorld.

“It is just going to be swallowed up and whilst being paid more people overall may be worse off.

“When you consider the average rent for London, not to mention the average property price, it won’t do anything to elevate the housing crisis for young people where property and rent has increased at a far higher rate to wages in real terms.

“On top of this you have a group of people under 23, who are not subject to this rise, and who earn substantially less and in many instances are in need of the money just as much – not everyone has the option to live at home with parental support.

“When you take into account the expected winter inflation of 4% to 5%, a 6% pay rise is really only 1%.”

The rise, which comes into effect next April, means a full-time worker will get £1,074 extra a year before tax.

However, economic think tank the Resolution Foundation has calculated that living wage employees would only see their take-home pay go up by just £265 a year, thanks to the taper in Universal Credit, and payments of income tax and the higher rate of National Insurance contributions.

Nye Cominetti, senior economist, said: “A rise in the National Living Wage to £9.50 would be very welcome – especially given that low earners have been the hardest hit by the crisis, both by job loss and reduced hours, and through the direct health consequences of Covid-19.

“This 6.6% rise would continue the trend of above-inflation rises in the National Living Wage, as it moves to its target of two-thirds of median earnings by 2024.

“These have already pushed the proportion of employees in low pay to its lowest level in four decades, and helped drive momentum for the Prime Minister’s plan for a high-wage economy.

“However, the high headline increase would in fact be a smaller real rise than some recent years, given that inflation is likely to be over 4% by April 2022.

“Importantly, a National Living Wage rise will not remotely compensate for the £20 a week cut to Universal Credit (UC).

“Most National Living Wage workers receiving UC will lose over 60% of any rise in wages to the taper in UC.

“More importantly, there are 4.4 million families who have lost from the cut to UC, compared to two million workers on the National Living Wage

“With the UC cut having already hit incomes hard, and the National Living Wage rise over five months’ away, there will be little protection for low income families from the cost of living crisis facing them this winter.”

The Living Wage Foundation, which has campaigned for a living wage of £9.50 across the UK, and £10.85 in London said the news was “positive” but more needs to be done.

Graham Griffiths, director, said: "The past 18 months has been a perfect storm for workers and families, with costs like fuel and energy rising and cuts to household incomes, so it’s positive to see a significant increase in the minimum wage from April 2022.

“However, the real Living Wage, unlike the government minimum, is calculated annually based on covering living costs.

“Next month, as part of Living Wage Week, new Living Wage rates will be announced that reflect the rising living costs we’ve all been experiencing.

“These rates will see a substantial gap remain between the real Living Wage and next year’s government minimum wage.

"We all need a wage that provides a decent standard of living.

“If we’re to recover and rebuild over the coming months and years, we’ll need to see more employers commit to go beyond the government minimum, do the right thing now, and commit to paying a real Living Wage."