National Living Wage vs Real Living Wage

Why companies need to step up in response to the cost-of-living crisis.

From April 2022 the statutory National Living Wage rose to £9.50 an hour for anyone over 23 years of age working in the UK. While we at Rathbone Greenbank Investments welcome efforts to combat inequality and in-work poverty, the fact remains that even with the increase, the statutory National Living Wage does not cover the real cost of living. 

In this article we will explore the difference between the National Living Wage and the Real Living Wage, highlighting the work we and our partners are doing to promote a fairer society, where individuals are paid enough to cover the increase in their cost of living. 

National Minimum Wage 

In the UK, statutory National Minimum Wage is divided by age. Upon turning 23, UK residents with the right to work become entitled to an hourly rate at or above the National Living Wage. This is a minimum wage by another name. 

The updated National Minimum Wage (April 2022):   

- 23 and over: £9.50 (6.6% increase) – this is the National Living Wage 
- 21-22: £9.18 (9.8% increase) 
- 18-20: £6.83 (4.1% increase) 
- Under 18: £4.81 (4.1% increase) 
- Apprentice: £4.81 (11.9% increase)  

Unfortunately, the minimum wage is too low to cover basic needs for many families and individuals across the UK, especially considering the rise in the cost of living, recent increases to National Insurance contributions and the current high inflation rate. Those on the minimum wage often struggle with in-work poverty – where their pay cheques don’t cover their living costs. If the statutory National Living Wage cannot provide a route out of poverty, then there is greater onus on responsible businesses to safeguard workers through voluntary measures instead.    

The Real Living Wage 

There is a voluntary alternative that predates the introduction of the statutory National Living Wage in April 2016. The Real Living Wage is calculated by our partners at the Living Wage Foundation and shows what an individual needs to earn to pay for their everyday needs including rent, bills, food and medicine and to contain provision for emergencies. This hourly wage is voluntarily paid by 9,000 businesses in the UK. Accredited employers agree to pay the Real Living Wage not only to directly employed staff but also to regularly contracted staff such as cleaners or in-house caterers.  

The Real Living Wage also, crucially, considers region. By taking into account that the cost of living is dependent on location, it provides a more equitable indication of what a minimum wage should be. Currently the Real Living Wage is £9.90 across the UK and £11.05 in London.  

Why we need the Real Living Wage now 

Employment should provide a clear route out of poverty, but it can only do so if remuneration is fair and people are able to participate in work without fear of exploitation. As we go into the second half of 2022, we are faced with the growing threat that is the cost-of-living crisis and persistent high rates of inflation – making the need to protect those on low wages more important than ever. 

The cost-of-living crisis, driven by rocketing oil and gas prices as well as global supply chain challenges from the war in Ukraine and the Covid-19 pandemic, is of particular concern for those on the minimum wage. In periods of high inflation, real wages – the actual purchasing power of your pay cheque – often fall. If wages do not keep up with inflation then, in real terms, they are declining.   

This hike in inflation rates is especially concerning when considering the way inflation is currently calculated. It does not consider that every individual has a unique personal inflation rate depending on their personal spending habits and needs. The ‘basket of goods’ method includes a variety of products and does not reflect how cheaper products (like low-cost food) may soar in price at a much greater rate than the national inflation average – disproportionately disadvantaging those on the lowest end of the wealth spectrum. 

In addition, while some may be able to insulate themselves from inflation by delaying or cutting back on spending on items such as alcohol or electronics, there is very little that people at the lower end of the socio-economic spectrum can do to protect themselves from the rising cost of essentials such as food, housing and heat. 

Greenbank’s work 

At Greenbank we have been working with ShareAction and the Living Wage Foundation on projects in the UK as well as similar Living Wage campaigns that operate abroad. While a Real Living Wage isn’t a silver bullet, we do recognise that it is a crucial part of a fairer economy and society. 

We encourage companies to pay the Real Living Wage – focusing on encouraging FTSE 250 companies to become accredited living wage employers. More recently, we have also supported the Living Hours project which encourages companies to sign up to commitments on security and visibility of working patterns and schedules for workers with variable hours.  

This helps to prevent situations where someone may seem to be paid a living wage, but is vulnerable to sudden changes to their working hours; meaning that in reality they do not have security of income. It also helps protect workers from situations where a change in shift patterns or hours offered may be used as punishment for speaking out on safety or labour rights issues.  

All businesses should pay their employees a fair wage, and a wage cannot be considered fair if it does not cover the basic needs of the worker. We call on all businesses to adopt the Real Living Wage, and we call on all investors to work with investee organisations to enable them to do so.