Why a 6.8% pay rise is only modest

The “Real Living Wage”, calculated by one sort-of-Blairite think-tank, the Resolution Foundation, for another, the Living Wage Foundation, went up on 22 October by 6.8%.

Its calculators reckon that is the minimum rise necessary for lower-paid workers to keep up with price rises over the past year.

The new rates are £14.80 per hour in London and £13.45 outside for everyone over 18. The legal Minimum Wage (also called Living Wage) is £12.21 per hour. It is expected to go up 4.1% to £12.71 in April 2026. It covers those 21 and over, with a lower rate for younger workers.

There has always been a gap between the “Real Living Wage” (calculated since 2011) and the legal Minimum Wage (since 1999), though the gap has trended smaller over recent years.

6.8% rise! Even Tube workers, industrially strong, are accepting 3.4%. In August 2025 the average wage rise since August 2024 was reported as 6% in the public sector and 4.4% in the private sector. Maybe the sort-of-Blairite calculators are overdoing it?

In fact, if you read their small print, the calculators arrived at 6.8% only because they said in advance that the “Real Living Wage” (RLW) increase in any year can be no more than CPI (Consumer Price Index) plus 3% (and no less, they say, than CPI minus 3%, though it is hard to see how that limit would ever kick in). Why? To avoid excessive short-term shifts, they say.

CPI increased 3.8% between September 2024 and September 2025, so the RLW rise could be no more than 6.8%. The detailed calculations (so the report says) indicated a higher rise (they don’t say how much higher), but became irrelevant once they indicated more than 6.8%. They explain, though. Water bills, gas, electricity, and rent, which account for more of lower-paids’ spending than of better-paids’, have risen much more than 3.8%. Food prices have risen above average, too.

The calculators have dropped their previous (implausible) assumption that all single parents and second-earners in households with children work full-time, and slightly upgraded the “Minimum Income Standard” basket of essentials. (Socialistic nonsense? Think. Would a “basket” from 1970, which would not include a phone or a microwave, still be good today?)

Factor

Another factor pushing up RLW is frozen tax thresholds. More low-paid workers pay income tax. The two-child benefit cap hits more households year after year, because it applies only to children born after 2017, so each year a bigger proportion of families with more than two children fall victim to it.

Other prices have risen less than water, rent, etc., so, yes, better-off workers may be able to keep their living standards with less than a 6.8% rise. But over recent years, more and more workers, especially young workers, have become clustered near the Minimum Wage or RLW level. In the civil service and local government, swathes of pay-grading have been compressed into single rates by Minimum Wage rises pushing up the floor.

Another factor does not come into the RLW calculations, but remains important for workers considering wage claims.

The figures are usually quoted in the style of “CPI inflation was 3.8% in September 2025”. But that figure of 3.8% does not tell us what happened to prices in September. It tells us what happened to prices over the 12 months between September 2024 and Sep 2025.

There are good reasons for the statisticians reporting that way. Prices bounce around short-term, so one month’s figures can mislead. But reading 3.8% as “the inflation rate now” misleads, too. CPI has risen more sharply since January 2025 than in 2024. Even though September’s price index turned out, unexpectedly, flat, the same as August’s, the rate of price rises this year so far is 4.4%. CPI, as the RLW calculators show, also underestimates inflation for the low-paid, and not just now: there is a long-term, though not invariable, trend for many (not all) basic items to rise in price faster than say laptop computers, or air fares.

RPI (the Retail Price Index) is genuinely more faulty than CPI in technical times. But it usually comes out a bit higher than CPI, so unions sometimes use it as a rough-and-ready measure of a price index geared to working-class rather all-classes-average consumption. This year so far RPI has risen at an average of 5.6% p.a., closer to the “RLW index” value of 6.8%.

A world economic recession, and worse conditions for winning pay rises, is a serious possibility for 2026. That may mean lower inflation, though not necessarily. But it would be foolish for any workers to accept a low pay rise this year with the thought that 2026 will bring better conditions to win gains.

The RLW’s 6.8% is a minimum baseline for what is required to keep workers, or lower-paid workers at least, ahead of the rising waters of inflation.