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The UK’s minimum hourly wage will rise by 6.7 per cent to £12.21 from next April, with a bigger pay boost for young workers, chancellor Rachel Reeves said on Tuesday.
The increase, announced ahead of Wednesday’s Budget, is designed to keep the adult wage floor at two-thirds of median income, after new data showed average earnings were both higher than previously thought in 2023 and expected to grow faster.
The minimum pay rate for 18- to 20-year-olds will rise to £10 an hour — up more than 16 per cent from £8.60 now, as ministers seek to bring it in line with the adult rate. The hourly rate for apprentices and those aged 16-17 will rise by 18 per cent to £7.55.
Reeves, who has vowed to protect “working people” in her maiden fiscal event, said the boost would benefit more than 3mn workers and was a “significant step” towards delivering a “genuine living wage” for all employees.
The UK’s minimum wage — a flagship policy of Tony Blair’s Labour administration that was introduced in 1999 — has risen rapidly under Conservative-led governments to become one of the highest in the rich world.
The changes set out by Reeves mean an adult working full time at the so-called “national living wage” will earn an extra £1,400 a year, while those in the 18-20 age group will earn an extra £2,500.
But they also mean many companies will face a steeper increase in their wage bills than they have budgeted for, coming on top of near-10 per cent jumps in the NLW in both 2023 and 2024.
Business groups have warned that smaller employers in particular will struggle with the combination of a higher wage bill, new labour laws that could add up to 1.5 per cent to the cost of hiring in low-paying sectors, and a likely £20bn increase in payroll taxes.
Kate Nicholls, chief executive of trade body UKHospitality, said the increases in pay rates were “well above expectations” and would add £1.9bn to the sector’s wage bill. Companies wanted to pay staff more “but what is being asked of them is simply unsustainable if taxes are going to shoot up at the same time”, she added.
John Foster, chief policy and campaigns officer at the CBI employers’ lobby group, said the minimum wage had been “valuable for protecting the incomes of the poorest” but that the increase, coming “against a challenging economic backdrop”, would make it harder for businesses to invest in innovation.
Baroness Philippa Stroud, chair of the Low Pay Commission, the independent body that advises on wage levels, said there were “some signs of employers finding it harder to adapt to minimum wage increases” but it had balanced these concerns against the government’s ambitions.
Younger workers, who account for more than a third of those on low pay, are seen as especially vulnerable to any pullback in hiring if employers cannot find other ways to manage a rising wage bill — by raising prices, improving productivity or accepting lower profits.
Nye Cominetti, principal economist at the Resolution Foundation think-tank, said it would be important “to monitor the employment effects” of the new rates, “including whether firms are switching to self-employed labour to minimise their tax bills and employment rights obligations”.
But Paul Nowak, general secretary of the Trades Union Congress, the umbrella body for the UK labour movement, said warnings that the minimum wage would destroy jobs had always proved unfounded in the past.
“Young workers deserve to be paid the fair rate for the job . . . The government is right to tackle this injustice,” he said.
Ministers had asked the LPC to keep the adult minimum wage at no less than two-thirds of median earnings, but also to take rising living costs into account — while raising the lower youth rates as far as possible without damaging job prospects.
The LPC previously said the adult rate was likely to rise by about 6 per cent. Its decision to recommend a bigger increase follows data revisions showing average wages were higher than thought, and set to grow faster.
The Office for National Statistics said on Tuesday that changes to the way it counted higher earners suggested median hourly pay for full-time employees was £17.52 in April 2023, above its previous estimate of £17.40.
Growth of 6 per cent in average earnings over the following year meant median hourly pay stood at £18.64 in April 2024, with median weekly earnings at £728 and median annual earnings at £37,430.
