National Living Wage has made 'little change' to living standards of poorest, IFS says

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The National Living Wage has failed to significantly lift the living standards of low paid workers, a major report by the Institute for Fiscal Studies (IFS) has reported.

Introduced two years ago, the rebrand of the compulsory minimum wage in April 2016 saw the base level of pay for over-25s rise from £6.70 to £7.20.

However the IFS has found that while pay growth for the lowest-paid fifth of employees rose by six per cent between 2015‒16 and 2016‒17, higher tax payments and a cut in benefit entitlements partly contributed to living standards rising by just 0.4 per cent.

The tiny lift in overall household incomes is also down to the fact that earnings of low-paid employees are, on average, only a small proportion, 32 per cent, of their total household income.

The overall pay in households with higher-earning partners fell in 2016‒17, therefore suppressing average living standards.

Yet elsewhere, low-paid employees in households with below-average incomes saw their pay rise by two per cent in 2016–17, contributing to an overall reduction in income poverty.

The report also found that hourly pay since the introduction of the NLW has been “far faster” for the very lowest-paid workers, at up to seven per cent, than those in the median earnings bracket, at two per cent.

The figures come as part of the IFS’ flagship annual report on living standards, inequality and poverty.

IFS research economist and one of the authors of the research Agnes Norris Keiller said: "The wages of low-paid employees have grown strongly since the introduction of the National Living Wage but improvements in their average living standards have been much more modest.

"In part this is because the pay of higher-earning partners fell in 2016‒17.

"However, low-wage employees who live in households with below-average income did tend to see growth in their living standards, reflected in falls in poverty."