National Living Wage announced

A new National Living Wage of £7.20 an hour for workers aged 25 and over is to be introduced next April, the Chancellor, George Osborne, has announced.

The surprise announcement was made in the first Conservative-only Budget for almost 20 years, on 8 July.

What is changing?

The new rate will replace the national minimum wage for workers aged 25 and over. It compares with the current minimum wage of £6.50, which is due to rise to £6.70 in October.

Osborne said the rate would rise to more than £9 an hour by 2020, reaching 60 per cent of median earnings.

The Office for Budget Responsibility estimates that around six million workers will see their pay rise as a result.

Cuts to benefits

The Budget also included cuts of £12 billion to the welfare budget. Tax credits, which top up the incomes of working families, will be reduced, and most working-age benefits will be frozen for four years.

The benefit cap, the maximum a household can receive, will be cut to £20,000 a year, or £23,000 in London.

Critics say many low-paid families will be worse off overall, because the benefit cuts will outweigh the rise in pay. The Institute for Fiscal Studies has said the higher wage will not fully compensate for the cuts.

Business concerns

Some business groups have warned that the higher wage will increase costs, particularly for small businesses, care homes and retailers, and could lead to job losses. To help, corporation tax will be cut to 18 per cent by 2020.

Other measures

The Budget raised the personal allowance to £11,000 next year and introduced a new allowance so that family homes worth up to £1 million can be passed on free of inheritance tax.

A levy will be introduced on large employers to fund apprenticeships.

Politics

Osborne said Britain needed to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.

Labour, which is choosing a new leader after its election defeat in May, said the government was stealing its ideas while hitting working families with cuts.

The Living Wage Foundation, which sets a voluntary living wage based on the cost of living, said the new rate was a welcome step, but was not a true living wage.