The “national living wage” falls short of providing a decent standard of income to low-paid staff because of rising rents and slowing wages growth, say campaigners against low pay.

After a six-month review, the Living Wage Commission said it had assessed the “best available evidence on living standards” and concluded that the £7.20 an hour national living wage (NLW) for the over 25s, introduced in April, was failing to provide the basic needs of low-paid households.

The commission said the fall in take-home pay across the country after the 2008 banking collapse, and slow wages growth in the past eight years, had left millions of workers struggling to make ends meet.

Wages need to increase at a faster rate than rising rents, petrol prices and heating bills to continue closing the gap with higher-paid workers, the commission said.

The report will come as a blow to employers that have reported a decline in profits after the introduction of the NLW.



Last week John Lewis warned of job losses in its department stores to fund salary rises after promising to keep wages above the new minimum level.

Shares of Mitie lost more than a quarter of their value this week after the cleaning and elderly care businesscited the cost of paying the NLW as a reason why clients’ budgets had been squeezed.

The NLW, announced by the former chancellor George Osborne, was expected to increase the wages of 2.5 million low-paid workers, after lifting them above the £6.70 minimum wage.

Ignoring the pleas of business representatives, Osborne said the NLW should rise to £9 an hour by 2020 to achieve the government’s objective of ensuring that the low paid earned at least 60% of median earnings by 2020.



The Living Wage Commission, a charity that lobbies for a voluntary £9.40 London living wage and £8.25 nationally, said full-time workers on the higher rate earned about £80 more than workers paid the NLW in London and £40 more a week than those paid the NLW nationally.

Gavin Kelly, chair of the commission, said: “This review marks the next phase of the living wage campaign for decent pay and provides a robust and up-to-date analysis of the wage needed for people to meet their everyday costs in London and the UK.

“The findings make clear that the living wage benchmark in the capital is going to have to rise in the years ahead if people are to be able to get by. With living standards set for sluggish growth in the years to come, the need for employers to pay the independent living wage rates is stronger than ever.”

Ikea, National Grid, Nestlé, the cosmetics retailer Lush and independent brewer BrewDog are among the employers to pay workers the charity’s higher living wage.

Osborne handed the task of assessing how much to increase the NLW to the Low Pay Commission, a government-appointed body that decides the annual minimum wage increases. It is expected to limit yearly increases after listening to objections from business leaders.

But employers have lobbied the Treasury and the Low Pay Commission to limit the impact of the NLW, arguing that a steep rise would be an unsustainable burden for many firms when the economy was expected to slow over the next year.

Responding to the Living Wage Commission report, Josh Hardie, deputy director general of the employers’ body the CBI, , said the higher Living Wage Commission rate was a good guide for employers who can afford to pay it. But, he added: “We should also recognise that it is a stretch for many firms in some sectors – especially amongst smaller firms in retail, hospitality and care – who would be forced to employ fewer staff or offer shorter hours if their bottom pay rate rose too high.

“That’s why it’s right that the Living Wage Commission maintains its voluntary target, and we also have a statutory minimum wage, set by the independent Low Pay Commission and taking into account possible effects on employment opportunities if the rate is unaffordable.

But Frances O’Grady, general secretary of the TUC, encouraged all employers to pay the independent living wage. She said UK workers were still paid less than before the financial crisis in 2007 after the largest fall in wages of any developed country except Greece.

“The government’s increased minimum wage for workers over 25 is a step in the right direction, but it’s not enough to live on,” she said.

The best benchmark for what workers need to live on is the independent living wage rate set annually based on the cost of living.”