UK 'living wage' raised to £7.85 an hour

The UK "living wage" - an hourly rate based on the amount needed to cover the basic costs of living - has been raised by 20p to £7.85.

The voluntary wage - set by the Living Wage Foundation - is now 21% higher than the compulsory National Minimum Wage, which is currently £6.50 an hour.

The rate in London will rise from £8.80 an hour to £9.15, the mayor, Boris Johnson, announced.

However, some business groups said employers might struggle to pay it.

The living wage has been adopted by more than 1,000 employers across the country, benefiting 35,000 workers.

Firms who have signed up to the voluntary scheme include Barclays, Standard Life, the National Portrait Gallery, as well as many local councils and charities.

On Sunday, Citizens UK, the community organisation behind the Living Wage project, said the number of companies paying the rate had more than doubled in the past year.

Despite this rise, research published on Monday by accounting firm KPMG - a supporter of the wage - found 22% of the working population earn less than the 2013 Living Wage - which was set at £7.65 an hour.

It said more than five million people were paid below that rate, and that women were more likely to earn less than men.

Among them is John from Manchester, who earns £7.10 an hour - above the minimum wage, but less than the living wage.

He is employed by a well-known High Street retailer, but he and his colleagues cannot afford to buy anything from the shop where they work.

"If your salary from the store is your only source of income it is a struggle to shop at the full prices in any of the sections," he told the BBC.

"If two young people working in the retail industry tried to get a mortgage they would be laughed out of the bank," he added.

However, some business groups are not happy with the increase in the living wage.

The Institute of Directors (IoD) said some employers might struggle to pay it. It also said that it would rather concentrate on keeping people in work, even if it meant lower wages.

"For businesses operating in a particularly competitive environment, they face a difficult dilemma - employing five people on the minimum wage, or just four on the living wage," said Simon Walker, director general of the IoD.

"This isn't a decision any business leader takes lightly, and we need to avoid stigmatising those employers who cannot afford the living wage," he added.

The Federation of Small Businesses said it supported the living wage, but that it should remain a voluntary goal.

The living wage is an informal benchmark, not a legally enforceable minimum level of pay, like the national minimum wage.

The national minimum wage is set by the business secretary each year on the advice of the Low Pay Commission. It is enforced by HM Revenue & Customs (HMRC).

The living wage is currently calculated by the Centre for Research in Social Policy at Loughborough University, while the London living wage has been calculated by the Greater London Authority since 2005.

The basic idea is that these are the minimum pay rates needed to let workers lead a decent life.

Read more on the Living Wage.

Rhys Moore, director of the Living Wage Foundation, said low pay was a strain on the public purse, as "firms that pay the minimum wage are seeing their workers' pay topped up through the benefits system".

He added that "rewarding a hard day's work with a fair day's pay" was the driving principle behind the Living Wage.