The new top rate of the national minimum wage (to be known as the national living wage) poses some particular challenges for the health sector. Stuart Craig from Mills & Reeve explains.
What is the national living wage?
The national living wage or NLW is in fact a new top tier level of the national minimum wage (NMW) for workers aged 25 or over which is due to be implemented in April 2016. Initially set at £7.20 per hour, it is expected to rise to £9.30 by 2020.
At least in the short term the current NMW rates will stay in place, though the top rate (currently £6.70 per hour) will be limited to workers between the ages of 21 and 25 from April onwards. Despite including ‘living’ in its title, it bears no direct relation to living costs.
In this respect it is different from the Living Wage, an hourly rate of pay set by the independent charity the Living Wage Foundation in November each year. Currently £9.40 per hour in London and £8.25 outside, it takes into account regional living costs as well as the availability of in-work benefits to ensure a level of income that allows workers to pay for their basic needs on the assumption that they are working full time.
What is the likely impact in the health sector?
It is thought that primary legislation will be needed to make the NLW a reality. Assuming this can be put in place in time for April next year, the Resolution Foundation (an independent think-tank) estimates 1.9 million workers will be directly affected, with a further 2.6 million benefiting from a ‘spillover’ effect as wages of other workers rise to preserve differentials. However, the distribution of these workers across the economy will be uneven. The single largest group of workers who will benefit work in retail, although there are also high concentrations of workers in healthcare and catering.
Within the healthcare sector the impact will vary according to occupational groupings. To take just one example, the Resolution Foundation expects that more than half the workforce in residential care will see a wage rise by 2020, compared with just 2% of health professionals.
The Low Pay Commission – the independent body which up to now has been responsible for setting NMW rates – has been concerned for some years about systematic non-compliance in the private social care sector. The Resolution Foundation has now published a separate report about meeting the additional funding challenges in social care posed by the NLW. It estimates that its introduction will increase payroll costs by over £2 billion by 2020, and calls for a new funding settlement to pay for it.
It is presumably in response to this report, and concerns expressed from other quarters, that in his latest autumn statement the Lord Chancellor announced a social care precept to give local authorities who are responsible for social care the ability to raise new funding to spend exclusively on adult social care.
Stuart Craig from Mills & Reeve