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Accounting for the impact of the forthcoming “national living wage” on the third sector

The Summer Budget of 2015 included an announcement by the Chancellor, George Osborne, of an extension of the national minimum wage (NMW) to £9 per hour, a target which it is intended will be reached in 2020.

In this Briefing Paper Steve McKay estimates the total cost to third sector organisations of moving from the current NMW to the proposed level of £9 per hour. Data from the Annual Population Survey (October 2014 – March 2015) are used. It is shown that the cost to the third sector of moving to the rate of £7-20 (proposed for 2016) will be c. £100Mn and that a move to £9 per hour would mean changing the earnings of around 3/10 of the third sector workforce, with an estimated costs of c. £400Mn. There are also further cash costs associated with the higher wage bill beyond those paid to workers in the form of higher earnings.

As a result of these changes it is estimated that the total cost to the third sector will be of the order of £500MN by 2020.