What is the real living wage and how is it changing?

London's 'real living wage' is set to rise, but what does that mean for workers in the capital and elsewhere in Britain

People on London Bridge with umbrella's - UK
A rise has been announced to London's 'real living wage' - but it won't help all workers in the capital.

Hundreds of thousands of workers in London and the rest of the UK are in line for a pay rise after it was announced the 'real living wage' would go up by 70p an hour.

The rate – which for the UK capital will now be set at £13.85 per hour and £12.60 per hour for the rest of the country, a rise of 70p and 60p, respectively – is calculated by campaigners at the Living Wage Foundation (LWF).

Although not a statutory obligation for all employers, it will mean an uplift for those working for companies which are signed up to the campaign.

Labour has also promised to ensure workers are paid a “genuine living wage”, regardless of age, but further details of what this could mean in practice are unlikely to be known until the chancellor unveils her autumn budget.

Here, Yahoo News UK explains what the rules are, who they apply to and what to do if your employer isn't paying you what they are supposed to.

The Real Living Wage pay rate is determined by the LWF, based on current living costs such as household bills and groceries. It applies to all workers over the age of 18, and businesses can choose to participate in the scheme voluntarily.

There are separate rates for the UK as a whole and for London, reflecting the significantly higher living costs in the capital.

It is distinct from the national living wage, which is set by the government every year - whereas in the case of the Real Living Wage, companies sign up to the scheme voluntarily.

The foundation announces the updated rates every October. Once announced, participating employers have six months to implement the changes, which must be completed by 1 May 2025.

The LWF confirmed this week that the living wage rate for the UK is now £12.60 an hour, while the London rate has increased to £13.85. This represents a rise of over 5% for both rates, up from £12 and £13.15, respectively.

The increase means that workers will earn an additional £1,170 per year, with those in London receiving an extra £1,365, according to the LWF.

The policy currently known as the national living wage was introduced by then-chancellor George Osborne in his 2015 budget and updated the existing national minimum wage.

Treasury projections at the time predicted the change would benefit 2.7 million workers directly.

The national living wage is a legal requirements which all employers are expected to adhere to and is calculated as a percentage of the UK's median earnings.

The minimum wage, which is lower and applies to workers under the age of 21, is set based on negotiations with businesses and trade unions.

Both, however, are distinct from the higher 'real living wage', which is a voluntary scheme coordinated by campaign group, the LWF.

EDINBURGH, SCOTLAND - DECEMBER 19: Former British politician and Chancellor of the Exchequer, George Osborne attends  the memorial service for former Chancellor of the Exchequer Alistair Darling at St Margaret's Episcopal Cathedral on December 19, 2023 in Edinburgh, Scotland. The Labour politician entered politics as a Lothian Regional Councillor in 1982 and represented Edinburgh as a Labour MP from 1987 to 2015. He served as Chancellor of the Exchequer under Gordon Brown from 2007 to 2010 during the 2007-2008 financial crisis. A key figure in the Scottish independence debate, Darling was chairman of the 'Better Together' campaign, advocating to keep Scotland in the Union. He passed away on November 30, 2023, at 70, survived by his wife, Maggie, and their two children, Anna and Calum. (Photo by Euan Cherry/Getty Images)
Former Tory chancellor George Osborne announced the official national living wage in 2016. (Getty Images)

The government-set national living wage is currently £11.44 per hour and applies to workers over the age of 21.

Workers of at least school age, but under 21, must be paid at least the national minimum wage, which is also mandated by the government.

This is currently set at £8.60 per hour for 18-20-year-olds or £6.40 per hour for under-18s. However, both of these are lower than the rates advocated for by the LWF.

Millions of public sector workers have already been told to expect inflation-busting pay rises from the new Labour government.

Chancellor Rachel Reeves is reportedly seeking to raise £40bn in her upcoming autumn budget to fund a series of promises, including a pledge to ensure minimum pay is a “genuine living wage”, regardless of age.

However, few other details have been released so far to suggest what this could mean for pay packets.

LONDON, ENGLAND - OCTOBER 14: Chancellor of the Exchequer Rachel Reeves makes her keynote speech during the International Investment Summit on October 14, 2024 in London, England. The UK is hosting an International Investment Summit in London, as the new Labour government aims to reset relations with its global trading partners, and to invite investment and growth opportunities across the country. (Photo by Jonathan Brady - WPA Pool/Getty Images)
Chancellor Rachel Reeves is expected to announce pay changes in her autumn budget. (WPA Pool/Getty Images)

If you are not being paid up to the rate of either the national living wage or the minimum wage, depending which applies to you, consumer organisation Citizens Advice recommends first having an "informal chat" with your employer.

The government has a pay calculator service to help with such discussions.

If your employer agrees they have made a mistake, arrangements should be made immediately to pay you what you are owed.

This should not be paid-in-kind with other benefits such as free meals or a greater share of tips or gratuities.

If you still have issues, you can get advice from organisations such as Citizens Advice, or via Acas, the arbitration service.