Millions of workers will receive a pay rise today when the new national living wage comes into force.
Unions welcomed the £7.20 hourly rate for adults – increasing by 50p from £6.70 – but said it was not fair that younger workers were missing out, while business groups warned that firms’ paybills will “ratchet up”.
The Government’s aim is to increase the rate to £9 an hour by 2020, which would affect an estimated nine million workers.
Research by the Resolution Foundation found that more than one in four employees in the Midlands, Wales and Yorkshire and the Humber will benefit, compared to one in seven in London.
Owen Smith, shadow work and pensions secretary, said: “It’s a typically cruel sleight of hand from the Tories to introduce their version of the living wage with one hand, while taking five times as much in cuts to Universal Credit and Tax Credits with the other.
“While this higher minimum wage for the over-25s is welcome, it will feel like an act of deception for the two million families set to lose £1,600 a year through cuts to in-work support.”
TUC general secretary Frances O’Grady said: “Britain desperately needs a pay rise, and this increase is good news for those aged 25 or older.
“But the Government must ensure that younger workers are not left behind. 21-24-year-olds will not be seeing an increase tomorrow. This is not fair. Future wage increases must narrow the pay gap between old and young.
Helen Barnard, head of analysis at the Joseph Rowntree Foundation, said: “The national living wage is an important step towards a high-wage, low-welfare economy.
“Investing in the skills of low-paid workers and encouraging the creation of more productive jobs would help us to reach this goal faster.
“However, on its own it won’t do a great deal for poverty. That’s partly because many workers with low hourly pay live in households with quite high overall incomes.
Dr Adam Marshall, acting director general of the British Chambers of Commerce, said: “T he Government’s new living wage will apply a ratchet effect to all companies’ pay bills, and sits alongside a raft of other high employment-related costs.
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“While many companies have the ability to increase pay, others will struggle to do so alongside pensions auto-enrolment, the apprenticeship levy, employer National Insurance contributions, and other up-front costs.
“Some will have to divert money from training and investment to increase pay, which could hurt their productivity. Others may stop hiring altogether.”
Josh Hardie of the Confederation of British Industry said: ” Companies are committed to raising prosperity and living standards, but for wage increases to be sustainable they must go hand-in-hand with productivity growth.
“If the living wage doesn’t get this balance right it will risk being unaffordable for many firms. Smaller businesses and those in key sectors like hospitality, retail and care are likely to be particularly affected.”
Around 2,300 employers have already signed up to the higher voluntary living wage of £9.40 an hour in London and £8.25 for the rest of the UK.
Katherine Chapman, director of the Living Wage Foundation said: “Today’s new legal minimum is an important step forward in tackling low pay in the UK. The landscape on low pay has shifted. This is down to the employers we work with who have over the past 10 years voluntarily chosen to pay beyond the minimum wage rates set by Government.
“However the job is not done when it comes to tackling low pay. Around six million people earn below the voluntary living wage with women, young people and part time workers most affected by low pay.”
The Government said the new rate will mean a £900 cash increase for a full-time worker on the current national minimum wage.
Chancellor George Osborne said: “The national living wage will play a central role in moving Britain to a higher wage, lower tax, lower welfare economy.
“It will also mark the end of the gender pay gap for some of our lowest paid and hardest working people.”
Eurosceptic Culture Secretary John Whittingdale poured cold water on the initiative, warning that having a higher minimum wage for British workers while in the EU would fuel immigration.
“The living wage was a great idea to give British families a pay rise, but because we have no control of our borders the main people that benefit could be from other EU countries,” he told The Times, adding that the influx would place public services under “great strain”.
Labour MP Chuka Umunna, from the Stronger In campaign, accused Mr Whittingdale of attacking the living wage and having “inherent antipathy to using the clout of government to raise wages for the very lowest paid”.
Mr Osborne, speaking at the Asda superstore at Trafford Park in Manchester, sai d: “We said that Britain deserved a pay rise and today Britain is getting a pay rise.”
The Chancellor added: “It’s going to be a pay rise for millions of people, it’s all part of a Government that is delivering for working people.
“So often when the economy recovers and starts to grow it’s the better off who see the benefit of that but I wanted to make sure, we were determined to make sure, that everyone saw the benefits. That’s why we are introducing this national living wage.”
Mr Osborne said: “For people under 25 there is the national minimal wage and we have just announced that it is going to go up to £6.95 an hour and we want to make sure that we are not putting people out of work as we increase the wages, so we thought the NLW is best for people over the age of 25, although companies like Asda, they have decided to pay everyone including the people under 25 that wage.”