However, the National Living Wage will increase by 2.2 per cent from £8.72 to £8.91 an hour, and will be extended to 23 and 24-year-olds for the first time. Previously the rate was only paid to employees aged 25 and over.
As part of the 2020 Spending Review, Rishi Sunak explained that with the disparity in wage growth between the public and private sector and against the backdrop of the pandemic, he “cannot justify a significant pay increase across the board”.
Sunak said that in the six months to September, private sector wages fell by nearly one per cent compared to the previous year. By comparison, public sector pay rose 3.9 per cent in the same period.
Further, private sector workers are more likely to have been financially impacted by coronavirus via reduced furlough wages, reduced hours and redundancies.
But to protect jobs in the public sector and to ensure ‘fairness’, he outlined three steps:
- Pay rise for over one million NHS workers (doctors and nurses). This will be based on recommendations from the NHS Pay Review Body and Doctor and Dentist’s Review Body in spring 2021.
- Pay rises for the rest of the public sector will be paused next year (2021/22).
- Protect the 2.1 million public sector workers on lower incomes so that those earning below £24,000 a year will see a pay rise of at least £250.
Spending Review documents reveal the three step plan represents around 25 per cent of total government expenditure.
By pausing the headline pay awards next year for some public sector workers, the government said it means it can protect jobs and investment in services as part of its response to spending pressures from Covid.
The restricted public sector pay news doesn’t come as a surprise as reports last week suggested the chancellor was looking to impose a pay freeze to help balance the books amid the coronavirus pandemic.
The Trades Union Congress said: “Rowing back on this planned pay rise is no way to treat those who kept the country going through this pandemic. After their dedication through this crisis, the very least our key workers deserve is the pay rise they were promised.
“After a decade of standstill pay, yet another pay freeze is a kick in the teeth for the key workers in the public sector who kept the country going in this crisis.”
National Living Wage
The reduction in the National Living Wage age threshold follows a review of the structure of the National Minimum Wage youth rates and recommendations made by the Low Pay Commission in autumn 2019.
The threshold will further reduce to 21 by 2024.
Bryan Sanderson, chair of the Low Pay Commission, said: “Recommending minimum wage rates in the midst of an economic crisis coupled with a pandemic is a formidable task. The difficulty in looking forward even to next April is daunting.
“There are strong arguments concerning both low-paid workers – many performing critically important tasks – and the very real solvency risks to which small businesses are currently exposed. In these unprecedented conditions, stability and competence are prime requirements.
“Our value as a social partnership is to use the imperfect economic evidence to produce a recommendation which is professionally researched and dispassionate. Most importantly, after much debate it has the support of the business, trade union and academic representatives who make up the commission.
“We have opted for a prudent increase which consolidates the considerable progress of recent years and provides a base from which we can move towards the government’s target over the next few years.”
The government said the increase in National Living Wage will mean that low paid workers’ incomes rise broadly in line with predicted wage growth; and modestly ahead of projected increases in prices, meaning low-paid workers’ living standards should be protected.
A full-time worker on the National Living Wage will see their annual earnings increase by £345 next year.
Sunak said that compared to 2016 when the policy was first introduced, the rises in the National Living Wage equated to a pay rise of more than £4,000.
Richard Churchill, a partner at tax and advisory firm Blick Rothenberg, said: “Increasing the National Minimum wage should be supported but this is an additional cost for many businesses in the hardest hit sectors of retail and hospitality.
“The chancellor needs to acknowledge that this is contradictory to job preservation and creation and ensure support is given to these businesses to ensure there is simply not just less jobs.”
In its 2019 manifesto, the government committed to ensure that the National Living Wage will reach two-thirds of the median wage by 2024.