Minimum wage to rise again from April to £12.71 for over-21s

Millions of people are set to get a pay rise from April due to an increase in the minimum wage, the government has announced ahead of Wednesday’s Budget.

The hourly rate for over-21s will rise by 50p to £12.71, with workers aged 18-20 seeing an 85p rise to £10.85 and under-18s and those on apprenticeships getting 45p more to £8 an hour.

Chancellor Rachel Reeves said 2.7 million people will benefit from the increases, which will take effect from 1 April.

However, businesses have warned that further increases to the living wage could result in hiring freezes.

These increases are on top of 6.7% and 16.3% rises respectively last year – when there was also a rise in employers’ national insurance rates.

This all pushes up costs for firms which can react by reducing hiring, giving lower pay rises to other workers or raising prices for their customers.

There is plenty of evidence that employers have taken some or all of these steps in the last year.

The Treasury said the new rates struck a balance between “the needs of workers, the affordability for businesses and the opportunities for employment”.

Reeves said the cost of living was still the biggest issue for working people.

“The economy isn’t working well enough for those on the lowest incomes,” she added.

• The minimum wage for over 21s, known as the National Living Wage, will rise by 4.1%. For someone working full time (37.5 hours a week), that equates to £900 more a year to £24,784.50.
• The minimum wage for 18 to 20 year olds known as the National Minimum Wage will go up 8.5%. For someone that age working 20 hours a week, this would be £21,157.50. The government has said it wants to phase out a separate band for this age group, and establish a single rate for all adults
• 16 and 17 year olds and apprentices will see their minimum wage increase by 6%

The Real Living Wage, is an unofficial hourly rate of pay which is overseen by the Living Wage Foundation charity.

It is aimed at UK workers aged 18 and over, but is voluntary, and firms can choose whether or not to pay it. The wage increases every October.

Katherine Chapman, director of the Living Wage Foundation, welcomed the increase, but said it still fell short of covering the cost of living.

“It will still fall short of the voluntary real living wage which is the only wage rate based solely on the cost of living. The real living wage is currently £13.45 in the UK with a higher rate of £14.80 in London.”

Ms Chapman noted 16,000 employers had already committed to going beyond the legally required minimum.

The Resolution Foundation think tank, which focuses on low to middle income households, said the increase for 18 to 20 year olds was “unnecessarily big” and could make it harder for people in that age group to find a job.

“These steep increases risk causing more harm than good if they put firms off hiring and push up NEET [not in education, employment or training] rates.”

The Trades Union Congress (TUC) said phasing out the separate rate for 18 to 20 year olds was “absolutely the right call”.

“With living costs stubbornly high, an above-inflation pay rise will make a real difference to the lowest-paid,” said TUC General Secretary Paul Nowak added.

“Young workers have bills like everyone else and deserve a fair day’s pay for a fair day’s work. It’s right they see a larger rise as youth rates are phased out.”

Kate Nicholls, the chair of UKHospitality, called on the chancellor to reduce the industry’s tax burden “if businesses are expected to sustain this level of annual wage increase”.

“Hospitality businesses have reached their limit of absorbing seemingly endless additional costs. They will simply all be passed through to the consumer, ultimately fuelling inflation.”

Jane Gratton, deputy director of public policy at the British Chambers of Commerce, said: “Every above-inflation wage increase leads to higher business costs, lower investment and fewer opportunities for individuals.

“Making employment more expensive risks deepening the jobs crisis among young people.

“There’s a limit to how much additional cost employers can bear without something having to give.”