The national living wage, real living wage and minimum wage explained

The Big Issue breaks down how much you should be taking home in your pay packet whether you’re on the minimum earning floor or due a little bit more

A fair day’s wage for a fair day’s work. It’s an old saying that has turned into a cliché but it is just as true in the age of the national living wage.

Work must pay enough money for employees to afford a home and essentials like food, water, electricity and other utility bills. Otherwise, even people who have jobs do not have the means to keep their heads above water and out of poverty and homelessness.

The relationship between wages and the price of essentials in 2022 is under the spotlight amid a growing cost of living crisis which is blighting household finances across the UK. 

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Campaigners have been calling for work to pay for two decades with the real living wage after it launched in 2001. And now, as many workers face a real-terms pay cut, they’re still fighting for decent pay packets across the country.

But how much is enough for someone to live on? And who decides how much money that should be? This is where a national minimum wage and a national living wage comes in.

What is the real living wage?

Unlike the government-set national living wage, the real living wage is a voluntary rate of pay that employers can choose to give to their staff. 


In many ways, the real living wage is self-explanatory – it’s paying someone enough money to live on. The Living Wage Foundation (LWF) sets the rate of pay based on up-to-date living costs, taking into account the cost of bills, the weekly shop and other measures. 

It also applies to all workers over 18, whereas the government sets different minimum wage levels for 16 to 22-year-olds and over-23s.

In November last year, the LWF set the real living wage at £9.90 across the UK — and £11.05 in London — to keep up with the rising cost of living, which has continued to soar since. The group updates the real living wage each year based on inflation and the cost of fuel, energy, rent and food.

Nearly 10,000 accredited UK businesses choose to pay it, including nearly half the FTSE 100, insurer Aviva, TV channel ITV, IKEA and football clubs such as Everton FC.

“Over the past twenty years we’ve seen hundreds of thousands of people’s lives changed by the real living wage,” said Graham Griffiths, director of the Living Wage Foundation.

“It has allowed people to spend more time with their families, save for the future, and enjoy the stability and security necessary to thrive. We know too that the living wage has transformed employers across the country, and we’ve been delighted to see businesses continue to accredit at an astonishing rate during the pandemic.”

As part of the UK’s recovery from the pandemic, the campaign behind the real living wage is shifting from solely focusing on individual employers to also include a regional outlook.

Greater Manchester Mayor Andy Burnham has stated his intention to turn Greater Manchester into the first real living wage city region.

Following his re-election, Burnham formed a Living Wage City-Region action group to work towards the goal of ensuring all workers in the city will be paid a real living wage by the end of the decade.

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The action group brings Burnham together with businesses, unions, local authorities, faith groups and voluntary and charitable organisations to set out how the plans will come into force.

Last month, the mayor announced that social care staff across Greater Manchester would be paid the real living wage.

Implementing the pay level is a crucial part of ensuring that people “receive fair pay, have decent working conditions, and experience opportunities to develop and progress,” Burnham said.

“The pandemic has laid bare inequalities in our city-region. In this new era for this place, all parts of Greater Manchester will come together and deliver a fairer, greener, more prosperous conurbation for every person living and working here.”

He also announced that the local authority and its ten borough councils would only procure from companies that pay their staff the living wage by 2023.

What is the national living wage?

The Westminster government sets the national living wage, telling employers the minimum hourly rate that they are legally allowed to pay employees aged over 23.

On April 1 2022, the national living wage increased to £9.50 per hour for workers, a six per cent rise on the previous rate.

The government called it the largest ever increase to the national living wage – which has existed in its current form since 2016 – and said that it would mean a £1,000 per year pay rise for full-time workers.

Bryan Sanderson, chair of the Low Pay Commission, said: “The business secretary’s strong support is especially welcome at this difficult time.

“Workers on the minimum wage care for our elderly and sick, harvest and deliver our food, and do a multitude of other tasks which help us all.

“They all deserve to be properly remunerated and respected as key members of our society.”

But with inflation set to reach a high of around eight per cent this spring, campaigners warned even this increase is too little to compensate for the real-terms pay cut workers face as daily essentials soar in price.

Nye Cominetti, senior economist at the Resolution Foundation, said: “This is the fourth biggest rise in the 23-year history of the minimum wage, though it is unlikely to be enough to keep up with rising prices.”

Katherine Chapman, director of the LWF, agreed that the change is “welcome news” for low-paid workers but said: “It remains significantly lower than a real living wage based on what it actually costs to live.”

Meanwhile the national minimum wage – the government’s term for the lowest legal wage given to workers aged between 16 and 22 – will increase at different rates depending on a worker’s age.

This means:

  • 21 and 22-year-olds get a 9.8 per cent increase to £9.18 per hour
  • 18 to 20-year-olds get a 4.1 per cent increase to £6.83
  • 16 and 17-year-olds get a 4.1 per cent increase to £4.81

What is the London living wage?

There is no mandatory London-specific living wage from the UK Government but the Greater London Authority has set a London living wage since 2005. The Living Wage Foundation’s real living wage also sets a London-specific rate to reflect the higher living costs in the area compared to the rest of the UK. 

From November 2021, the foundation recommended that Londoners are paid a real living wage of £11.05. 

Who is entitled to the national living wage?

Prior to the April 1 2021 rate rise, only adults aged over 25 were entitled to the national living wage. But the government changed the age threshold at the time to include 23 and 24-year-olds.

Around 2.2 million people receive the national living wage or the national minimum wage, according to the Low Pay Commission. Fewer people receive the real living wage, amounting to around 250,000 people.  

How much is the national living wage per year?

The national living wage is usually stated as an hourly rate – currently £9.50 – because annual pay will depend on how many hours are worked.  

But for someone working a full-time job at a 35-hour working week, gross income would work out at about £17,200 per year before tax or pension deductions.

The government said the latest rise to the national living wage in April 2022 is boosting annual income for full-time workers by £1,000 – but think-tanks replied that £265 is a more realistic figure for extra take-home pay per year.

What is the difference between the national minimum wage and the national living wage?

The national minimum wage is the rate of minimum hourly pay for workers aged below 23 years of age.

Set by the UK government, it works out as a lower rate of pay than the national living wage.

The national minimum wage also applies to apprentices, who should be paid £4.81 per hour. 

The national minimum wage has been around for a lot longer than the national living wage. It was first introduced on April 1 1999 after the National Minimum Wage Act was approved the previous year.

The national living wage followed in 2016 while Citizens UK kicked off the campaign behind the real living wage in 2001. 

Why is a minimum wage not a living wage?

The independent Low Pay Commission advises the UK government on the rate of pay for the national minimum wage and the national minimum wage.

But the Living Wage Foundation (LWF) recommends higher pay through the real living wage because they simply believe the mandatory rate is not enough to live on.

The national minimum wage and the national living wage are largely set as income floors which wages should not fall below but are not designed to ensure workers can maintain a decent standard of living above the bare minimum. 

The real living wage looks at various measures taking into account a family’s basic day-to-day needs including housing, food and clothing before setting their higher rate.

LWF director Chapman added: “Even before the cost of living crisis, millions of workers and families were struggling to stay afloat.

“With bills continuing to rise, many more are now at risk of falling into financial hardship. If we’re to weather this storm we need employers to take action now, step up, and provide a real living wage that meets everyday needs, giving security and stability for both employers and workers.”

The LWF also argues that paying the real living wage can boost businesses through improving their reputation as well as improving motivation and staff retention.

Who is calling for a £15 minimum wage?

Raising the national minimum wage to £15 was thrown into the spotlight  into the spotlight after being backed at the Labour Party conference last year as part of a “new deal for working people.”

It came after shadow employment rights minister Andy McDonald quit the shadow cabinet claiming he was instructed to argue against a £15 an hour national minimum wage and statutory sick pay at the living wage.

McDonald, who was also calling for statutory sick pay to be paid at the living wage, said the opposition party should be arguing for a minimum wage increase to combat rising prices through inflation and other additional costs families are facing in the post-Covid recovery.

Given that more than half of the entire workforce of the UK earns less than £15 per hour, many have asked whether a £15 minimum wage would actually work. 

The median hourly earnings for all employees in 2020 was £13.68 per hour. So, not only would professions such as cleaners, waiting staff, and retail employees who have long been paid the minimum wage receive a hefty pay increase, so too would many in graduate level jobs.  

However, the need to make work pay has been exemplified by the number of people who receive universal credit while also working. Around 40 per cent of universal credit claimants – over two million people – are working, according to the TUC.


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