Over a million low-paid workers are expected to receive a significant wage increase in 2025, as the Government pledges to raise the National Living Wage (NLW) to £12.10 per hour. This comes as part of a broader commitment by the Government to ensure wages reflect the cost of living and align with two-thirds of median earnings.
Currently, the NLW stands at £11.44 an hour, but the Low Pay Commission has outlined plans for a 5.8% rise next year, with the possibility of further increases. Labour’s focus on raising wages for the lowest earners has been spearheaded by Deputy Prime Minister Angela Rayner and Business Secretary Jonathan Reynolds, who have tasked the commission with ensuring that low-paid workers’ wages keep pace with the economy’s rising costs.
The move is part of Labour’s commitment to “raise the floor on wages.” The Commission’s updated projections indicate that earnings growth in 2024 could lead to even higher wage increases than initially anticipated. A previous forecast in March 2024 estimated a 3.9% rise, but stronger economic performance has necessitated a more substantial adjustment.
Alongside this, younger workers aged 18 to 20 are set to see even larger pay increases. The Government aims to standardise wages across age groups, removing age-based discrepancies in minimum wage rates. Workers in this age bracket are currently paid a minimum of £8.60 an hour, but the Commission is expected to recommend bringing them in line with the adult NLW by 2025.
An interim plan will start this alignment process, meaning that younger workers can expect steeper rises than those earning the NLW. The Commission projects that the NLW could range from £11.82 to £12.39 by 2025, with £12.10 being the most likely figure due to strong wage growth trends. These changes will take effect in April 2025, pending the Commission’s final recommendations, and are due to be submitted to the Government by the end of October 2024.
Business leaders raise concerns
While workers and unions have broadly welcomed the wage increase, business leaders have expressed concern. Tina McKenzie, a board member of the Federation of Small Businesses, warned that rising labour costs are already the biggest pressure for many small firms. She noted that further wage increases could exacerbate challenges for businesses already struggling with recruitment and survival in a competitive market without proper Government support.
Small businesses have responded cautiously to the April 2024 wage increase, slowing hiring due to rising costs. She cautioned that further mandatory wage hikes could strain small firms, especially those without sufficient resources to absorb these costs.
In response, Paul Nowak, general secretary of the Trades Union Congress, dismissed these concerns, likening them to objections raised when the minimum wage was introduced in 1999.
Nye Cominetti of the Resolution Foundation added that while the minimum wage has consistently risen above inflation in recent years, Labour’s new mandate could result in even higher wage growth. He acknowledged that although the increase is positive for workers, businesses might have preferred a more modest adjustment. However, he pointed out that fears of job losses linked to rising minimum wages have so far not materialised.
Nonetheless, as wages rise, the risk of negative employment effects may become more tangible. Policymakers must carefully balance higher pay with potential job loss.
A spokesman for the Department for Business and Trade reiterated the Government’s focus on raising wages while considering the wider impact on businesses and the economy. “We are changing the rules to put more money in working people’s pockets,” he said, “but we must also consider the businesses paying these wages and the overall economic impact.”
As wage increases take shape, the Government says it remains committed to balancing the benefits of higher wages for workers with the challenges businesses face in a changing economic landscape.
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