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Chancellor Sajid Javid has announced that the National Living Wage (NLW), currently £8.21 an hour and the highest paid minimum wage rate, is to reach £10.50 within the next five years.

Speaking at the Tory Party Conference in Manchester, Javid has also announced that the age threshold for those who qualify for the NLW would be lowered to 23 in 2021 and 21 by 2024. Calling the Conservatives the ‘workers’ party’, Javid claims that cutting the age threshold to 21 would be a way of rewarding ‘the hard work of all millennials’.

This announcement has been met with scepticism by business owners, with Helen Dickinson, CEO of the British Rail Consortium, outlining that although there was ‘nothing wrong with targeting higher wages’, it would add to the ‘cumulative pressures’ on the retail sector. Furthermore, TUC General Secretary, Frances O’Grady adds that the pledge would be ‘overwhelmed by a no-deal Brexit’ and that Javid’s comments should be taken ‘with a huge bucket of salt’. It is also interesting to note that, whilst this development would appear quite generous, the government have previously promised to set the national living wage at 66 per cent of the median income, which will already see it rise to £9.50 by 2023.

Although the increase is to be phased in over the next five years, the Chancellor’s plans are likely to hit organisations heavily in the pocket. In reality, the amount of the increase is not particularly big news. Whilst the 2020 rates are yet to be announced, the minimum rates are reviewed and generally increase each year and organisations have come to expect this. Perhaps the biggest news to take from the announcement is the lowering of age thresholds to qualify for the NLW. This will effectively revert the minimum wage structure to how it was before the introduction of the NLW by re-applying the highest minimum wage to those aged 21 and over.

Whilst fewer age bands will make the system a little easier for employers to understand, it means a significant increase in hourly pay for some workers, which some small businesses may struggle to achieve. Fortunately, the advance announcement of the pay increase will mean that some forward planning is possible and budgets can be set accordingly.

Whilst these developments would be affected if the Conservatives are not successful at the next election, it should be remembered that Labour Leader Jeremy Corbyn has also confirmed that a pay increase for the country’s lower paid workers is one of his highest priorities. What is therefore clear is that employee wages are to increase and that organisations need to be ready for this.

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