National living wage hike drives median pay award

The impact of April’s 9.8% increase to the national living wage continues to affect the median basic pay award, with it continuing to remain almost three percentage points above inflation.

The latest data from Brightmine shows the median basic pay award in the three months to the end of June 2024 was 4.9%, unchanged from the previous rolling quarter’s revised figure.

With the Bank of England reaching its 2% inflation target in May and June, pay awards are expected to continue to adjust accordingly, with Brightmine predicting a decrease in pay settlement levels in 2025.

The Labour government has pledged to change the Low Pay Commission’s remit to consider the cost of living and to remove age-based minimum wage rates for adults.

This would mean 18- to 20-year-olds currently on the national minimum wage of £8.60 per hour receiving the national living wage (NLW) of £11.44 (an increase of one-third), although the LPC and the Treasury could avoid such a steep change by phasing it in over time.

The Conservatives twice reduced the age threshold for the NLW: from age 25 to 23 in 2021, and then to 21 this April. Labour may similarly choose to reduce the impact of its policy by reducing the age threshold in stages.

Sheila Attwood, senior content manager at Brightmine, formerly XpertHR, said: “Our headline measures indicate broad stability of pay awards and we can expect this pattern to persist throughout the year. Settlements are more tightly bunched compared to this time last year, with fewer exceptionally high pay awards being observed. As we continue to see inflation levels stabilise, we foresee a more consistent and predictable approach to employee compensation moving forward.

“The government typically announces uplifts to the national minimum wage rates in November each year. Organisations with employees paid these rates can start to model what the proposed changes would mean in terms of their pay budgets, particularly if the removal of the age-based adult rates is confirmed.”

Last week the Office for National Statistics announced that annual growth in average regular earnings had slowed to 5.7% in the three months to the end of May, its slowest rate since August 2022.

Based on 145 pay settlements that came into effect in the three months to the end of June, covering 370,000 employees, Brightmine found that one in six pay deals exceeded 7%, mainly those for NLW employees. Excluding these, the median pay settlement was 4.3%.

Around half (47.3%) of all settlements that came into effect in the latest rolling quarter are worth between 4% and 5%, with 4% being slightly more common.

However, many employees saw pay awards worth less than their 2023 settlement. Three-fifths (61%) of pay deals in a matched sample analysis by Brightmine were worth less than the award provided to the same employees last year.

Over the weekend, Rachel Reeves, the chancellor, hinted that the Treasury could accept recommendations from the public sector pay review bodies, which are expected to suggest a 5.5% increase in pay for NHS staff, teachers, police and prison officers.

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