Real Living Wage explained as 500,000 set for pay rise - and Labour's plans ahead of the Budget

Wages in the UK can be confusing as there are several different ones, the main two are the government's National Living Wage and the Minimum Wage - but there is also a third called the "Real Living Wage"

The new rate for the Real Living Wage was confirmed today, and around 500,000 workers will receive a pay rise in the coming few months.

Wages in the UK can be confusing as there are several different ones. The main two are the government's National Living Wage and the Minimum Wage. These rates are a mandatory requirement for businesses, so it's against the law to pay any less. Alongside these, there is also a third which is called the "Real Living Wage".

Below we explain the difference between all three - and what it means for your earnings.

What is the Real Living Wage?

The Living Wage Foundation (LWF) decides the Real Living Wage pay rate, which is set based on up-to-date living costs, including household bills, the weekly shop, and other measures. It also applies to all workers over the age of 18. Businesses and employers can sign up to the scheme voluntarily. The foundation has a UK-wide rate and a London rate - this is because living costs are "much higher" in the capital compared to the rest of the UK.

The foundation confirms the rate each October and announced the latest update today. Once it has been announced, employers have six months to implement them before May 1 2025.

Today, the Living Wage Foundation confirmed that the UK's living wage rate should be £12.60 an hour, while London's living wage rate is now £13.85. This is an over 5% rise for both rates, which were previously £12 and £13.15, respectively. The latest rise means workers will get an extra £1,170 per year and an additional £1,365 for those in London according to the Living Wage Foundation.

What is the difference between the Real Living Wage and the National Living Wage?

The National Living Wage is an "obligatory" minimum wage businesses pay workers in the UK aged 21 and over for each hour they work. Former Tory Chancellor George Osbourne coined the term in 2015 and first introduced it in April 2016 for workers aged 25. It was then lowered to 23 and then to 21 in the years following its introduction.

The government decides the rates at which workers are paid each year, based on the advice of an independent advisory group, the Low Pay Commission. The National Living Wage includes agency workers and people on zero-hour contracts. Regardless of the size of the company or the sector, your employer still has to pay you the National Living Wage if you are 21 or over. It is illegal to pay you any less. There is also no London weighting for the National Living Wage.

The retail, care and hospitality sectors account for a large number of living wage jobs, although they are found in many other parts of the economy too. The rate is currently £11.44 and the amount someone will receive over the year depends on how many hours are worked. The Real Living Wage Foundation says full-time workers on the voluntary rate earn £4,700 more a year in London and £2,262 a year more in the rest of the UK compared to the Government's "Living Wage" rate.

What is the National Minimum Wage?

This is where people get confused. The National Living Wage is technically the minimum wage for those over 21. However, the National Minimum Wage is the rate businesses pay those under 21.

It is tiered depending on your age—this means you are paid less an hour if you are 16 compared to someone who is 18. Apprentices are paid the same rate as someone under the age of 18. They are entitled to the apprentice rate if they’re under 19 or in the first year of their apprenticeship. There is also no London weighting when it comes to the Minimum Wage. The current rates are:

• 18 to 20 - £8.60
• Under 18 - £6.40
• Apprentice - £6.40

What is Labour's plan for wages?

It's important to note that the previous Tory government set the current rate. In its "Make Work Pay" plan published in May 2024, Labour pledged to create a "Genuine Living Wage". The party's manifesto said it would make sure the minimum wage was a "real living wage" people could live on. It explained: "To achieve this, we would change the Low Pay Commission’s remit so that alongside median wages and economic conditions, the minimum wage will for the first time reflect the need for pay to take into account the cost of living."

The manifesto said it would remove the "discriminatory age bands" to make sure every adult worker would benefit. It also said it would work with the Single Enforcement Body and HMRC and "ensure they have the powers necessary to make sure our genuine living wage is properly enforced, including penalties for non-compliance". If this is the case, then the national living wage and the minimum wage should rise next April. This is likely to be announced in the Budget next week on October 30.

What companies pay the Real Living Wage?

Overall, 15,000 businesses in the UK, including half of the FTSE 100 companies, have signed up to pay the "Real Living Wage." This includes a mixture of major high street chains, global companies, and small businesses. In the past three years, the number of Living Wage Employers has more than doubled. The foundation says more and more businesses are recognising "the importance" of paying a real Living Wage as a result of the pandemic and ongoing cost of living crisis.

We cannot list all 15,000 employers, but major brands and businesses include:

• Lush
• Burberry
• Ikea
• Rough Trade
• Bird & Blend
• Aviva
• KPMG
• Nationwide
• Skipton Building Society
• Barclays
• Bank of Scotland
• Natwest Group
• Monzo
• HSBC
• Halifax
• The Co-Operative bank
• Oxfam
• Nestle
• Aberdeen City Council
• Everton Football Club
• ActionAid
• EDF Energy
• Queen Mary University of London
• National Grid
• Ovo Energy

You can find the full list of employees paying the Real Living wage here.