As she presented the Autumn Budget today (30 October), Chancellor Rachel Reeves announced a 6.7 percent increase to the National Living Wage.
This brings it from £11.44 to £12.21 per hour starting April 2025, equivalent to an additional £1,400 annually for a full-time worker. The changes come as part of a broader push towards higher wages as the government seeks to unify the National Living Wage and National Minimum Wage into a single adult wage rate.
For younger workers aged 18 to 20, the increase will be even more significant, with the National Minimum Wage rising by £1.40 to £10.00 per hour. This adjustment will add approximately £2,500 to the annual earnings of a full-time worker in this age group.
Ben Harrison, Director of Work Foundation at Lancaster University, said, “There is positive news for low paid workers that the National Living Wage will rise by 6.7% in April 2025. This is firmly above inflation of 1.7% and annual nominal wage growth of 4.9%.
“It is particularly welcome that the national minimum wage for 18-20 year olds will increase by £1.40 per hour, representing the largest single increase on record. Young workers (18-24) are twice as likely as other workers to be in severely insecure work, and have borne the brunt of higher living costs such as rising rents in recent years.
“However, a gap between those in-work and those not in the labour market continues to grow. The Chancellor plans to uprate benefits by just 1.7%, and with inflation likely to rise again in the winter as energy prices rise in the winter it may leave jobseekers struggling, and more likely to be pushed into insecure and unsustainable employment to make ends meet.”
Impact on Business and Workforce Productivity
Business Secretary Jonathan Reynolds said the adjustments align with long-term benefits for businesses and workers alike. “Good work and fair wages are in the interest of British business as much as British workers,” he said. “This government is changing people’s lives for the better because we know that investing in the workforce leads to better productivity, better resilience and ultimately a stronger economy primed for growth.”
However, some business groups and leaders have raised concerns about the economic context in which these wage increases will take place. John Foster, Chief Policy and Campaigns Officer at the Confederation of British Industry (CBI), said that while the wage increase supports income equality, it arrives at a challenging time for UK productivity.
“Politicians and businesses are united in wanting to ensure people have access to well paid, fulfilling work. The only sustainable path to achieving that aim – not only for those earning the minimum wage, but right across the economy – is higher growth and productivity.
“The National Living Wage has proven to be a valuable tool for protecting the incomes of the poorest in society and has supported equality in the lower half of the income distribution. But with productivity stagnant, businesses will have to accommodate this increase against a challenging economic backdrop and growing pressure on their bottom line. That pressure will make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages.”
Challenges for Smaller Employers
With the confirmed increase to the National Living Wage, businesses, particularly those with large workforces in sectors like hospitality and retail, are likely to face additional financial pressures. Suzanne Brooker, Partner at Spencer West LLP, pointed out that this wage rise, combined with increasing employer National Insurance Contributions (NIC), could further strain companies facing higher borrowing costs and inflationary pressures within supply chains.
Brooker remarked, “The confirmation to raise the minimum wage and to increase the employer’s NIC will place a further financial burden on UK business against a backdrop of increasing costs of borrowing (due the interest rate rises already in play) and inflationary rises in supply chains already in place.”
Brooker also noted that businesses may need to implement operational changes or pass on costs to consumers to balance these additional expenses, potentially affecting growth plans for many employers.
The Chartered Institute of Payroll Professionals (CIPP) voiced concerns that smaller employers might be particularly impacted. Mathew Akrigg, Policy and Research Officer for CIPP, acknowledged the benefits for low-wage workers but noted that increased wage costs could place a strain on businesses heavily reliant on young workers, including retail, hospitality, and childcare sectors.
Akrigg said, “Increases to the National Minimum Wage (NMW) and National Living Wage (NLW) have been fully accepted by the government. Such increases are fantastic for employees on low wages and represent a significant increase to many young workers.
“However, the added burden is piled onto employers, who are obliged by law to pay this rate of pay to their workers. Smaller employers who primarily employ a younger workforce, including retail, hospitality and childcare providers, will especially feel the pinch come April 2025.”
‘Get Britain Working’
Peter McGettrick, Chairman of British Safety Council said, “The Chancellor clearly honoured her promise not to increase taxes in people’s payslips, but while the smallest employers will be protected from an increase to employer NICs, many others will see their bills go up which could put new jobs at risk. For working people, increases to National Minimum Wage rates will be welcome given the rising cost of living, as will the planned increase to income tax thresholds for many thousands more in work, as well as changes to the Carers’ Allowance.
“A key challenge is how to support people who are economically inactive due to long-term health conditions to return to work, and make sure that our welfare provision is fair and sustainable. We look forward to the forthcoming ‘Get Britain Working’ White Paper alongside practical measures to shift healthcare to a more preventative approach.”
