1.7m Self-Employed Miss Out on Living Wage

A leading think tank has warned that over 1.7 million self-employed workers will receive less than the upcoming National Living Wage when it takes effect in April. By 2020, that figure is projected to climb to 1.9 million, according to research from the Social Market Foundation (SMF).

Current Rates and Government Commitment

At present, the National Minimum Wage stands at £6.70 per hour. From April, workers aged 25 and over will benefit from the new National Living Wage of £7.20. The government maintains this rise will support over one million low-paid workers and has highlighted measures such as start-up loans, enhanced tax allowances and a further £10 billion of red-tape cuts.

“Our new National Living Wage will give a boost to over one million low paid workers when it takes effect next week,” said a spokesperson for the Department for Business, Innovation and Skills.

Contracting vs. Direct Employment

The SMF’s report, funded by the charity Trust for London, warns that a higher living wage may incentivise firms to contract out services to self-employed workers rather than hire them as employees. “Policies such as the National Living Wage make it artificially more attractive for firms to engage contractors rather than employees, and ignore a large section of low paid workers,” said SMF Chief Economist Nida Broughton.

Official statistics reveal that one in seven UK workers is self-employed, and the SMF’s analysis of the Family Resources Survey shows:

• 49% of self-employed people earn two-thirds or less of the average hourly pay of employees, compared with 22% of employed workers.
• The issue is most pronounced in London, where 18% of workers are self-employed.

Economic Impact Assessment

In December, the Regulatory Policy Committee estimated that introducing the National Living Wage will cost UK businesses over £1 billion. For further reading on related labour market trends, see:

• Number of workers on zero-hours contracts rises to 801,000
• Apprenticeships failing young people, says commission

Living Wages: How Does It Add Up?

• National Living Wage: Compulsory from April 2016 for workers aged 25 and above, starting at £7.20 per hour and intended to exceed £9 by 2020.
• Living Wage (benchmark): An informal, voluntary rate rising to £8.25 (£9.15 in London) from £7.85.
• National Minimum Wage: Legally enforceable rate set annually by the Business Secretary on Low Pay Commission advice – £6.70 for adults (21+), £5.30 for 18–20 year olds.