Minimum Income standard for workers

The National Living Wage was introduced in April 2016. The broad aims of the policy can be best summed up by this opening sentence from a government document issued at that time:

“The government wants to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.”

In simple terms the aim was to reduce the amount that lower paid individuals rely on in-work state financial support, in exchange for an increased level of salary payments by employers. So is the National Living Wage now achieving its aims? A recent report from the Joseph Rowntree Foundation (JRF) would suggest that the new policy has some way to go before it can be considered truly successful.  

For the last decade JRF has been taking a detailed and practical look at the level of income individuals need to receive in order to achieve an acceptable standard of living. This has been delivered by creating a suggested “Minimum Income Standard” (MIS) for each type of family unit. In 2018 the JRF’s latest report finds that:

  • A single person needs to earn £18,400 per annum to achieve the MIS
  • A couple with two children need to earn £20,000 each for a disposable income equal to MIS

Yet the National Living Wage for an employee aged over 25 is only about £15,000 per annum.  

The above findings suggest that many workers are still heavily reliant on state financial support to achieve an acceptable standard of living. But the workplace benefits available have been subject to significant change in recent years. This will have resulted in some lower earners actually having a lower household income despite the prescribed annual increases in the National Living Wage. Indeed the Joseph Rowntree Foundation has concluded:

“Benefit levels and income available to lower-earning working households have not kept pace with rising costs.”

The report also highlights that minimum household budgets have increased for the lower paid by about a third since 2008, compared to the 25% rise in the national Consumer Prices Index. It therefore seems that lower earners may be facing ever greater financial challenges compared to other sectors of the working population.

This issue may well resolve itself over time, but it seems clear that employers need to do all they can to support their employees during these difficult times of transition. Of course most organisations can only do so much on salary awards in any given year, so we would therefore strongly urge many more employers to consider the introduction of financial education tools to help their employees spend their income as wisely as possible.

Find out more about our range of financial education services.