Chancellor George Osborne has unveiled a plan to introduce a “national living wage” of £9 per hours by 2020 in the first Conservative budget in nearly 20 years.

Osborne’s plan for a national living wage would apply to all workers aged over 25, with the rate starting at £7.20 an hours in April 2016 and rising to £9 by 2020, giving an estimated 2.5 million people a major pay rise over the course of five years. The Low Pay Commission would advise on future changes to the rate.

The commitment came amid a budget focused on cutting the deficit by reducing the welfare bill, telling MPs his budget set “out a plan for Britain for the next five years to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower tax, lower welfare country we intend to create”.

The chancellor argued that companies offering minimum wage, where workers needed to have their income supplemented by benefits to make ends meet, equates to a government subsidy for those businesses. Increasing the wages paid to workers across the board would reduce their reliance on benefits, eventually reducing the welfare bill.

Upon hearing the announcement, Ian Brinkley, Senior Economic Advisor at The Work Foundation, comented:

“The Chancellor’s bombshell announcement of a National Living Wage is a bold intervention that will increase the relative wages of many low paid workers. Equally surprising was the levy on large firms to help sustain more high quality apprenticeships. Both indicate a new willingness to intervene directly in the labour market, albeit driven by a desire to reduce future welfare bills, that is both welcome and surprising. Less impressive was the sustained freeze on public sector pay, which will simply add to recruitment and retention difficulties”

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