Mums and dads working full-time on the new National Living Wage will earn £212 per week less than the average amount spent by households with two adults and two children in the financial year ending 2017, according to ONS data.

Two parents aged 25 and over who each work 37.5 hours per week at the new National Living Wage rate of £7.83 per hour will take home a total of £529 per week after Income Tax and National Insurance.

Meanwhile ONS spending data show that in the financial year ending 2017 a household with two adults and two children, where one or both parents may work less than 37.5 hours per week, spent an average of £741 per week on housing, bills, food, clothes, childcare, holidays and other living costs.

One-earner households

The gap between earnings and average household spending varies depending on household circumstances, including how many people live in a household.

Someone aged 25 and over who works 37.5 hours per week on the new NLW will earn £265 per week after Income Tax and National Insurance.

In the financial year ending 2017, households containing only one non-retired adult with no children spent an average of £347 per week. Households with one adult and one child spent an average of £336 per week, and those with one adult and two or more children spent an average of £421 per week.

Comparing earnings and spending

These figures compare 2018 National Living Wage earnings to household spending levels in the financial year ending 2017. Since 2017, household spending levels are likely to have risen because of price rises (the most recent measure of inflation, Consumer Prices Index including owner occupiers’ housing costs (CPIH), stood at 2.5% in February 2018).

It’s important to note that earnings are not the only source of income. Tax credits, benefits and investments may help low-earners bring in more money. And low-income households tend to spend less than high-income ones, so in many households the gap between earnings and spending may be a lot smaller, or non-existent. However people in the UK are borrowing more than they used to, and levels of household debt have gone up in recent years.

Could you live on the National Living Wage?

Our calculator allows you to see how affordable your lifestyle would be if you earned the National Living Wage. We’ve also helped you see how your spending compares to the UK average household, using the latest ONS family spending data.

Our calculator has allowed for deductions of Income Tax or Scottish Income Tax, depending on where you live, as well as class 1 National Insurance at category A or M rates, depending on your age.

But our calculator does not take account of pension contributions, nor allow for any benefits or tax credits you may be entitled to, which are dependent on your personal circumstances.

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National Living Wage going up

On 1 April 2018, the National Living Wage (NLW) will go up from £7.50 per hour to £7.83 per hour. The NLW is the legal minimum hourly rate most people in the UK aged 25 or more can be paid.

This means someone who earns the National Living Wage and works 37.5 hours per week – the median number of hours worked by full-time workers in the UK in 2017 – will earn the following before tax:

  • £294 per week
  • £1,272 per month
  • £15,269 per year

These figures include holiday pay, which some workers (including those on "zero-hours" contracts) may not receive.

For workers aged 25 and over, the National Living Wage has replaced the National Minimum Wage (NMW). The government introduced the NMW in 1999 for workers aged 22 and over, and extended it to 21-year-olds in 2010.

In 2016, when the National Living Wage was introduced, the National Minimum Wage remained in place for workers above the school leaving age but under 25.

National Minimum Wage, National Living Wage and average earnings

Over the years the National Minimum Wage and National Living Wage have become relatively more generous compared to average earnings.

In 1999, the National Minimum Wage was £3.60 per hour. This was 46% of median hourly pay for workers aged 22 and over. By 2017, its successor the National Living Wage had reached 58% of median hourly pay for the age group it applied to.

This means that between 1 January and 31 July, someone aged 25 or over earning the average salary will have already earned the equivalent of a National Living Wage earner’s salary for the whole year.

What is a “living wage”?

The government introduced the National Living Wage in 2016, and it wants the NLW to reach 60% of average earnings by 2020, provided the UK economy continues to grow.

However the idea of a “living wage” has existed since the 1870s – and for almost all of that time the concept has not been related to the earnings of others, but instead has meant a wage that is enough to provide an acceptable standard of living.

Since 2001, beginning in London, the Living Wage Foundation has campaigned for a wage that supports the Minimum Income Standard, a standard that is based on the opinions of members of the public, as well as advice from experts like nutritionists and heating engineers.

It takes account of different household types – single people, families with children, pensioners – and includes:

  • food
  • clothes
  • accommodation
  • utilities
  • fuel
  • household goods
  • personal goods and services
  • transport
  • social and cultural activities

Unlike the government’s National Living Wage, the Living Wage Foundation’s UK living wage (which the foundation calls the "real" living wage) is based on being able to afford this basic set of goods and services. It also takes account of the higher cost of living in London, so is higher in the UK capital. Businesses can choose whether or not to pay the UK or London living wage, and around 4,000 employers currently do so.

Between 2011 and 2017, the UK living wage was set between 17% and 23% higher than the National Minimum Wage and National Living Wage. Over the same period the London living wage was between 35% and 41% higher than the statutory rates.

Real wages

The upward-sloping graph above shows rates of pay in nominal terms, which doesn’t reflect how pay compares to prices.

When we look at average earnings in real terms, since the 2008 recession, people’s take-home pay has often failed to keep up with inflation, meaning that they feel poorer each month. This is one of the reasons wages have remained high on the agenda in public debate.

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