A record 6.5 million people – almost a quarter of UK workers – will remain trapped on poverty pay next year, despite George Osborne’s 50p-an-hour increase in the national minimum wage, according to research by the Resolution Foundation thinktank.

Adam Corlett, Resolution’s economic analyst, said: “While the chancellor’s new wage floor will give a welcome boost to millions of Britain’s lowest-paid staff, it cannot guarantee a basic standard of living or compensate for the £12bn of welfare cuts that were announced alongside it.”

The chancellor announced the introduction of a “national living wage” in his July budget. It was an eyecatching bid for the votes of Britain’s workers and will see the statutory minimum pay rate for over-25s increase from £6.70 an hour to £7.20 next April – and to about £9 an hour by 2020.

But the new national minimum will still fall short of an actual “living wage”, calculated on the basis of the cost of basic essentials, including housing, food and transport, that has been the centrepiece of a long-running public campaign.

Supermarket giant Lidl recently became the latest high-profile company to promise its staff this higher rate, which stands at £7.85 outside London and £9.15 in the capital.

In its annual Low Pay Britain report, to be published next week, the Resolution Foundation will suggest that the living wage will have to be higher – £8.25 an hour outside the capital in 2016 – in part to compensate for the reductions in tax credits and benefits also announced in the budget. Households that receive less in welfare payments will need higher wages to make ends meet.

Resolution forecasts that, despite Osborne’s announcement, the number of people struggling to survive on less than the living wage will continue to rise, hitting 6.5 million people, or 24.4% of employees, in 2016 – up from 5 million, or less than 20% of workers, in 2012.

Frances O’Grady, general secretary of the TUC, said: “This analysis provides a sobering reality check. While any increase in the minimum wage is to be welcomed, the new supplement will not cure in-work poverty on its own.” She urged ministers to continue encouraging firms to adopt the living wage – a cause backed in the past by many senior Conservatives, including David Cameron and Boris Johnson.

However, with the chancellor’s national living wage for over-25s set to boost wages for up to 6 million workers, business groups are already warning about the impact on sectors that have many low-paid employees, such as hospitality and retail.

John Cridland, director general of the CBI, which has made its annual submission to the Low Pay Commission, setter of the national minimum wage, said: “Artificially increasing pay is a gamble that will hurt smaller businesses, as well as those operating in care, retail, hospitality and food-manufacturing sectors, in particular. It also risks harming the job prospects of people seeking work, as well as the outlook for those already in work.”



Costa coffee owner Whitbread and clothing chain Next are among the businesses that have sounded the alarm over the costs of the chancellor’s policy.

Cridland urged the government to respect the independence of the Low Pay Commission, made up of labour market experts, which has overseen the national minimum wage since it was introduced by the Blair government. The commission will decide at what level the national minimum should be set each year in order to meet the chancellor’s aspiration of lifting it to 40% of the median by 2020 – but without sparking mass job losses.

In his budget speech, Osborne predicted that up to 60,000 fewer jobs might be created over the next five years as a result of the policy change.