The national living wage could end up being 40p lower following the Brexit vote, a think tank has suggested.
Slower wage growth and steep inflation triggered by the UK’s decision to leave the EU could put the real-terms value of the NLW at just £7.91 in 2020, compared with the £8.31 predicted prior to the vote, research from the Resolution Foundation forecasts. The most “optimistic” case sees it being 9p lower per hour, says the research, based on various economic forecasts.
Introduced in April 2016, the NLW is tied to median average income. The Low Pay Commission is tasked with matching the rate to 60% of average income by 2020.
“Based on the best projections we have at the moment, inflation in the short term is going to be a bit higher and in that world, even if wage growth stayed the same, the NLW will end up being worth less,” said policy analyst at the foundation Conor D’Arcy.
The effects could be offset if faster wage inflation is created by changes to migration policies, added D’Arcy.
Despite this uncertainty, he doesn’t expect government to backtrack. “Based on the speeches from Theresa May on the theme of one nation and how can we help those trying to get on in life I think the NLW can be a really important tool in that agenda,” he said.
Three months after the NLW of £7.20 per hour for over-25s came into force, the Resolution Foundation report found 36% of businesses had increased prices to customers to absorb the cost. Only 8% said they had cut staff benefits.
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