From 1 April 2025, the national living wage will be PS12.21. This is a 6.7% rise. The government announced that the national minimum wage of 18-20-year-olds would increase by an unprecedented 16.3%, to PS10.00.
The Chancellor Rachel Reeves stated: “This Government promised a living wage to working people.” This pay increase for millions of workers represents a significant step in delivering on this promise.
Apprentices, 16-17-year-olds, and those with a minimum wage of 6.40 to 7.55 PS per hour will also see their pay rise by 18%.
A full-time worker aged 18-20 will receive a pay increase of PS2,500 in the coming year. Treasury stated that this is the first step in aligning national minimum wage with national living wage, creating a single adult wage rate.
The rate at which the rates are increasing suggests that the difference between the two rates can be closed in four years.
Angela Rayner, Deputy Prime Minister said: “A good day’s worth of work deserves a decent day’s salary.” The changes we are making will result in a pay increase that will allow millions of low-income earners to afford the basics, as well as the largest ever increase for 18-20 year olds.
Around 1.6 million workers currently receive the national living wage of PS11.44 per hour, but that will increase to PS12.21.
The Low Pay Commission (an independent body that advises the government on minimum wages) had predicted last month an increase of 5.8% in the hourly rate, to PS12.10. However, greater earnings growth led to a larger rise.
The LPC predicted that the range of national living wages in 2025 would be between PS11.82 and PS12.39.
Labour Ministers want to keep the national living wage at two-thirds hourly median income.
The average growth rate in earnings, excluding bonuses, in the year up to August 2024 was 4.9%
Baroness Philippa Stroud is the chair of the Low Pay Commission. She said: “The Government has been very clear about its ambitions regarding the national minimum wage, and the importance it plays in enhancing the living standards of workers. Employers have also had to contend with the fact that the adult rate has risen by over 20% in the last two years.
“It’s our job to find a balance between these factors, ensuring that the NLW pays a fair wage to the lowest-paid employees while also taking into account economic factors. These rates ensure a real-terms increase in pay for the lowest-paid employees. “Young workers will experience substantial increases to their pay-floor, making up for some of the ground they lost over time against the adult rate.”
The government is optimistic about the “good news” for the “working people”, but there are concerns over the costs to the businesses of the anticipated national insurance contributions that will be required to pay on wages.
Reeves will also likely announce a two-percentage point increase in employer NICs.
Some economists think that this would have a negative impact on workers, as employers may reduce pay rates or cut back on staffing because of the costs involved.
The Living Wage Foundation announced new Living Wage rates last week. Outside London, this new rate is PS12.60 an hour. Within the capital, it is PS13.85. These are increases of 5.6% and 5% respectively.
Hilary Jones, Lush Cosmetics’ ethics director, said: “Lush employees making and selling products are vital to our success. We commit to the Living Wage Foundation’s independently calculated real Living Wage rates every year to feel confident that our rates of compensation are fair and our staff can afford to thrive, and not just survive.
In these difficult times, where costs of living continue to rise, I am delighted to see that the government has increased the minimum wage to a level closer to this calculation to support the most hard-working and vulnerable workers in the UK.
Baroness Stroud added: “The data shows some signs that employers are finding it difficult to adapt to increases in minimum wage. Since the pandemic, the tightening on the labour market has been unwound. However, the overall picture remains the same as in 2019. Over the next 12 months, it is anticipated that the economy will grow. However, productivity growth remains low.
We look forward to continuing work in the coming year, as the details of the Make Work Pay Plan are developed. The NMW is an important part of the government’s plans for the future of labour markets, and it’s vital that it continue to be informed by expertise and consensus building provided by the LPC.”
Kate Shoesmith, deputy chief executive of the Recruitment and Employment Confederation, said that we should avoid artificially inducing inflation through price increases when interest rates are expected to be falling. The government and businesses have expressed concerns about their ability to continue operating if their cost base increases substantially in the near future.
Employers are most concerned about the cumulative effect. Businesses are weighing the impact of the new pay increases, which follow two years of significant increases in the national minimum wage. They also have to consider other cost pressures in a difficult market. Tomorrow’s Budget is expected to include an increase in national security contributions, as well as major regulatory changes via the Employment Rights Bill.
“Employers will want to make sure their teams receive the compensation they deserve, but they’ll also think about how they can balance this out. This could mean offering fewer hours to workers, not hiring for a vacant position for a time, or raising prices for consumers. The government has promised to prioritize growth. This is really necessary if employers want to navigate these changes.
This article was updated after the government confirmed that the rate increase would take place at 6:00pm, 29 October 2024. Kavitha Sivasubramaniam contributed additional reporting.
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