The national living wage rate from 1 April 2025 will be £12.21, a 6.7% rise, while the national minimum wage for 18 to 20-year-olds increases by a record 16.3% to £10.00 per hour, the government has announced ahead of the Budget.
Chancellor Rachel Reeves said: “This government promised a genuine living wage for working people. This pay boost for millions of workers is a significant step towards delivering on that promise.”
Apprentices and 16 to 17-year-olds will also receive a pay boost, seeing their minimum hourly pay rise by 18%, increasing from £6.40 to £7.55 per hour.
The £1.40 increase for 18 to 20-year-olds means a full-time younger worker will see their pay boosted by £2,500 next year.
The Treasury said this marks the first step towards aligning the national minimum wage and national living wage to create one single adult wage rate.
The rate of the increase suggests closing the gap between the two rates will happen over four years.
Deputy prime minister Angela Rayner said: “A proper day’s work deserves a proper day’s pay. Our changes will see a pay boost that will help millions of lower earners to cover the essentials as well as providing the biggest increase for 18–20-year-olds on record.”
Currently, around 1.6 million workers are paid the national living wage hourly rate of £11.44, but this will grow to £12.21.
National minimum wage 2025
Last month, the Low Pay Commission, the independent body which provides minimum wage advice to the government, anticipated the hourly rate for over-21s to increase by around 5.8% to £12.10, but greater earnings growth prompted a bigger rise.
The LPC had predicted a range for the national living wage in 2025 of between £11.82 to £12.39.
The former government’s national living wage target was two-thirds of hourly median income, and Labour ministers have said they want to maintain this.
Average growth in regular earnings excluding bonuses in the year to August 2024 stood at 4.9%
Baroness Philippa Stroud, chair of the Low Pay Commission, said: “The Government have been clear about their ambitions for the national minimum wage and its importance in supporting workers’ living standards. At the same time, employers have had to deal with the adult rate rising over 20% in two years, and the challenges that has created alongside other pressures to their cost base.
“It is our job to balance these considerations, ensuring the NLW provides a fair wage for the lowest-paid workers while taking account of economic factors. These rates secure a real-terms pay increase for the lowest-paid workers. Young workers will see substantial increases in their pay floor, making up some of the ground lost against the adult rate over time.”
However, despite government optimism around the good news for “working people”, there are concerns about the cost to businesses in anticipated national insurance contributions (NICs) that will need to be paid on wages.
In tomorrow’s announcement, Reeves is also expected to raise employer NICs by up to two percentage points.
Some economists believe that doing so would have an indirect impact on workers because employers might drop pay rates, cut back on recruitment because of the associated costs, or offer staff fewer working hours.
Last week, the Living Wage Foundation announced new rates for the voluntary, “real” Living Wage. Outside London, the new rate is £12.60 per hour, while within the capital it is £13.85 – increases of 5% and 5.6% respectively.
Hilary Jones, ethics director at Lush Cosmetics said: “Lush staff making and selling our products are crucial to our success, so we commit to the Living Wage Foundation’s independently calculated real living wage rates each year to feel confident our rates of pay are fair and that our staff can afford what they need to thrive, not just survive.
“In these tough times where the cost of living continues to rise, it is great to see the Government increase minimum wage closer to these calculations to support the hardest working and most vulnerable workers across the UK.”
Baroness Stroud continued: “The data show some signs of employers finding it harder to adapt to minimum wage increases. The tightening of the labour market since the pandemic has unwound, but the overall picture is similar to 2019. The economy is expected to grow over the next year, although productivity growth remains subdued.
“We look forward to continuing our work next year as the detail of the Make Work Pay plan is elaborated upon. The NMW is a major part of the government’s ambitions for the future of the labour market, and it is important that it continues to be informed by the expertise and consensus-building the LPC provides.”
The Recruitment and Employment Confederation’s deputy chief executive Kate Shoesmith said: “We need to avoid artificially driving inflation with price rises, when interest rates should be starting to fall. Businesses have set out to us and the government their concerns over their ability to continue to operate if there are further substantial increases to their cost base in the short-term – and very little on the horizon that points towards growth.
“It’s the cumulative impact that is bothering employers most. The level of these new pay rises, following two previous years of substantial increases to national minimum wage, plus other ongoing cost pressures, in a tough market, with an increase in national insurance contributions expected in the Budget tomorrow, and big regulatory changes afoot via the Employment Rights Bill – that’s what businesses are weighing up.
“Employers want to ensure their teams get the pay they deserve but many will also be thinking about how they balance that out. That might mean offering workers fewer hours, or not hiring for a vacancy for a while, or putting up prices to consumers. The government promised to prioritise growth – it’s really needed if employers are to manage their way through these changes.”
But some commentators believe the rise will prove burdensome to small businesses. “Many small businesses owners are already struggling to keep their heads above water and the additional costs anticipated in today’s Budget, including tax hikes, will be enough to cripple some, resulting in layoffs and redundancies,” said Kate Palmer, employment services director at Peninsula.
She said the increase in pay for younger workers could lead to a “knock-on effect” on employers hiring younger workers or apprentices.
“It’s likely that many smaller businesses will struggle, leading to lost opportunities for those looking to enter the workforce for the first time,” she added.
“While this may be good news for employees, it’s yet another cost that will add pressure to small business owners struggling with rising costs, expected increases to NICs and tax hikes. Such a large jump could have a significant financial impact on those who employ minimum wage workers.
“There is also likely to be a knock-on effect with employees who earn above the current minimum wage expecting a pay raise to maintain the gap between NMW and their pay. It’s highly likely that we will see job losses and some businesses going under due to the increased financial burden being placed upon them.”
This article was updated when the government confirmed the rate rise at 6:00pm on 29 October 2024. Additional reporting by Kavitha Sivasubramaniam.
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