A National Living Wage will come into effect on Friday 1 April, meaning up to one in three minimum-wage workers in parts of the country will receive a pay rise.
The new legal requirement means low-paid workers over the age of 25 will benefit from an extra 50p a day under George Osborne's "hugely ambitious" policy. Some areas will benefit more than others, however, and the Office for Budget Responsibility has warned the policy will lead to 60,000 job losses.
What is the National Living Wage?
Both full-time and part-time workers aged 25 and above will be eligible for the National Living Wage, which will be initially set at £7.20 an hour. The target is £9 an hour by 2020. This amounts to £15,000 a year if you work a 40-hour week.
Before the National Living Wage was introduced, the minimum wage for workers over 21 was £6.70 an hour, or around £13,900 a year if you work a 40-hour week.
So technically, the minimum wage will remain in place - but the new mandatory living wage will be a bonus for workers aged 25 and over. The change will not affect workers aged 24 and under who are currently being paid the minimum wage.
The government has said the policy is part of a long-term move to a "higher wage, lower tax, lower welfare" society.
How is it calculated?
The National Living Wage is calculated based on median earnings and it ensures everyone is being paid at least 55% of the median or average wage.
The chancellor said there were plans to increase pay to reach 60% of median earning by 2020, depending on sustained economic growth.
How does the National Living Wage add up with rent?
The median monthly rent for a one-bedroom flat (outside of London) is £525. A worker being paid the National Living Wage, working 37.5 hours a week, will spend an average of 45% of their gross earnings on paying rent.
In London, the median monthly rent for a one-bedroom flat is £1155. A worker being paid the National Living Wage, also working 37.5 hours a week, will spend an average of 99% of their gross earnings on paying rent. So essentially, it is not possible for a single person to rent a one-bedroom flat in London on the National Living Wage.
Was there not already a Living Wage?
Yes, but this is used by employers on a voluntary basis. Set by the Living Wage Foundation, it is a non-mandatory hourly rate set independently and updated annually. It is calculated according to the basic cost of living in the UK.
Currently, the UK Living Wage - not the National Living Wage - is £8.25 an hour. This rises to £9.40 for London to take into account the extra living costs of living in the capital. The government rate is calculated according to median earnings, while the Living Wage Foundation rate is based on the cost of living.
Unlike the National Living Wage, employers choose to pay the Living Wage on a voluntary basis. Companies which agree to pay workers at least this amount include Legal & General, Barclays and Aviva.
What are the downfalls?
The increase in the cost of wages for companies will lead to cuts in the hours available of 0.4, which will result in 60,000 jobs being lost, the OBR has said. These cuts will impact people in lower-paid jobs the most.
It will cost employers more to pay Osborne's living wage, so there will be a reduction in total hours worked per week by four million across Britain.
While the Living Wage Foundation welcomed the higher pay for lower earners, it highlighted that the National Living Wage is not actually a living wage:
"The Living Wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear," it said in a statement after the chancellor's July 2015 budget.
"Without a change of remit for the Low Pay Commission this is effectively a higher National Minimum Wage and not a Living Wage."