The national living wage comes into force in the UK on Friday, but what is it and what difference will it make?

What is the ‘national living wage’?

It is a new national minimum wage of £7.20 per hour for everyone 25 and over. The rate is 50p higher than the previous minimum wage of £6.70 – although that lower rate will still apply for those aged 21 to 25.

The new rate was announced by the chancellor, George Osborne, at his summer budget last year. Osborne framed the scheme as a boost for workers and said 2.5 million people would get a direct pay rise.

But the national living wage (NLW) should not be confused with the longer standing, voluntary living wage. That is set every year and calculated as the amount a full-time worker needs to earn in order to afford a decent standard of living. Paid by 2,300 accredited living wage employers to all staff aged over 18, the current rate is £8.25 and the London living wage is £9.40 an hour. This means it is much higher than Osborne’s new pay rate. Even once the NLW has risen to £9 an hour by 2020, it will be lower than today’s London living wage.

Will everyone get a pay rise?

No. Only those over 25 qualify for the new rate. Anyone paid cash in hand by employers seeking to avoid paying taxes also risks missing out.

There have also been reports that employees who qualify for the NLW may see little change in their weekly income if their hours and overtime are cut as employers seek to keep their wage bills down.

So will it make much difference to people’s lives?

Campaigners for better pay have welcomed the new minimum wage. Its impact will be felt most in industries that have long relied on cheap labour such as retail and hospitality.

The Resolution Foundation thinktank says 4.5 million employees will benefit in 2016, rising to 6 million – or 23% of all employees – in 2020. That total includes people who are moving to the new higher rate, but also features workers higher up the scale who are expected to receive a pay rise as their employers seek to maintain existing pay grades.

The introduction of the national living wage will mean a 10.8% pay rise for those who have been on the minimum wage over the last year – five times the current earnings growth rate across the UK, the thinktank says.

The TUC, the UK trade union body, has welcomed the boost for over-25s but wants more help for younger workers who are not getting a pay rise on Friday. The TUC general secretary, Frances O’Grady, said: “This is not fair. Future wage increases must narrow the pay gap between old and young.”

How can people work out if they are being paid fairly?

People who were earning less than £7.20 an hour are being advised to check their April payslips for an increase in hourly pay. If they do not see a difference, the government advises that they talk to their employer in the first instance and, if necessary, contact the industrial relations body Acas on 0300 123 1100.

How will employers cover the higher wage bills?

Some have said they will hike prices, some have said they will cut jobs and use machines where possible to replace workers. So shoppers might expect even more automatic checkouts, for example.

But ultimately, employers will have to improve their productivity – or what is produced per worker per hour worked. As well as automation, this could mean better management and more training. Some employers that already pay the voluntary living wage have reported that higher pay itself has led to higher productivity thanks to better-motivated and more loyal staff.

Will it raise unemployment?

Yes, according to the government’s independent economic forecasters. The Office for Budget Responsibility has estimated that by 2020 there will be 60,000 fewer jobs as a result of the National Living Wage.

Debate has long raged among economists over whether minimum wage levels increase unemployment and by how much. Several studies comparing jobs markets with and without minimum wage rules have found little or no impact on employment.