Business

National Living Wage: 1.7m self-employed to miss out - think tank

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More than 1.7m self-employed workers will earn below the new National Living Wage when it comes into force in April, a think tank has warned.

The number will rise to 1.9 million by 2020, according to the Social Market Foundation's (SMF) research.

Currently, the government's national minimum wage is £6.70 per hour, but the National Living Wage for over-25s of £7.20 comes into effect in April.

The government said the increase would help over one million low paid workers.

"This government is committed to backing enterprising self-employed people through initiatives like start up loans, tax allowances and by cutting red tape by a further £10 billion.

"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.

Contractors 'ignored'

The SMF said its research - funded by the charity Trust for London - also raised concerns that the introduction of the higher National Living Wage provided an "added incentive" for firms to contract out services to self-employed people rather than take them on directly.

"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.

One in seven UK workers is now self employed, official statistics show.

Typically they earn far less than their employed counterparts on both an hourly and monthly basis, according to the SMF which used data from the government's annual Family Resources Survey (FRS), which asks respondents about income from self-employment, as the basis of its research.

It found that 49% of UK self employed people were low paid on an hourly basis - defined as earning two-thirds or less than employees - compared with 22% of employed people.

It found the problem was particularly acute in London, where 18% of workers are self-employed.

In December, the Regulatory Policy Committee, which advises government, estimated the introduction of the National Living Wage would cost UK businesses more than £1bn.


Living wages: how does it add up?

  • In July's Budget the government announced a new compulsory National Living Wage that will come into force from April 2016. It will be paid to workers aged 25 and above. It will initially be set at £7.20 an hour and is intended to exceed £9 an hour by 2020
  • The living wage is an informal benchmark, not a legally enforceable minimum level of pay. It is £8.25 an hour, and £9.40 in London
  • The national minimum wage is the compulsory minimum level of pay set by the business secretary each year on the advice of the Low Pay Commission. It stands at £6.70 an hour for adults aged 21 and over, and £5.30 for those aged 18 to 20

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