How much does the National Living Wage really help staff?

While there may be more of us in work than ever before, pay levels have flat-lined, living costs are on the up and the UK’s employees have been feeling the pinch.

The introduction of the new National Living Wage is intended to alleviate this pinch. It means that workers over 25 years old will receive at least £7.20 per hour, an effective rise in their gross pay.

However, once tax and National Insurance payment deductions are taken into account, these workers will only see a marginal increase in their net income. So, we have to ask ourselves how much this slight increase in take-home pay really helps in practical terms.

Credit has become the norm

In the absence of wage increases, the majority of the UK’s workers have become accustomed to using bank loans, credit cards and payday loans to combat the ever-rising cost of living. In February, the annual growth rate of consumer credit rose to 9.3% with personal loans accounting for the majority of cash borrowed. And, unfortunately a £7.20 increase in gross pay is simply not an effective solution to the working populations need for credit.

Of course people need to be paid appropriately, but that alone is not enough. They need affordable credit too. We have to accept that borrowing has become the norm in face of today’s living costs and must look towards effective solutions that don’t leave our employees with eye-watering repayments. 

Job security and cost of living worries

We know people in work are worried about the cost of living. Well, now they have to worry about their job security too. Business groups have warned that the burden of covering the costs of the new National Living Wage means employers may be forced to make job cuts and benefit cuts, meaning it could be doing more harm than good.

Wouldn’t we be better off turning our attention towards a solution that helps to increase disposable income for the UK’s workers without burdening our employers?

Employers must play a role in financial wellbeing...

We can do this by increasing the nation’s awareness of financial wellbeing, and employers have an important role to play in this. With effective reward and employee benefit strategies, employers can offer their workers access to companies who offer fairer interest rates. This means accepting that our employees may well make use of borrowing facilities but also ensuring they can get accessible rates when they do.

Analysis by the Trades Union Congress has found that unsecured debt per household rose to £11,800 in the third quarter of 2015. As a share of household income, unsecured debt is now the highest it’s been for five years.

An approach that offers the opportunity to cut borrowing costs would demand a new generation of financial services providers whose products are fairly priced.

..And the government too

With these facts in mind it’s clear to me that the government has a great opportunity to complete its workplace finance reform agenda. It could achieve this by adding a right to cut credit costs with access to fair financial services in the workplace to those now covering minimum hourly pay rates and pension auto enrolment. This will ensure that hard pressed employees will benefit most from a reduction in their credit costs.

For a Prime Minister and Chancellor committed to “making work pay” this should be an obvious legislative priority. 

 Monica Kalia is co-founder and chief strategy officer at Neyber.

This article was supplied by Neyber.