Chancellor Rachel Reeves has used her first Budget to deliver a significant pay rise for millions of the UK's lowest-paid workers, accepting recommendations to increase statutory wage rates from next April.
Details of the Wage Increases
The centrepiece of the announcement is a 4.1% increase in the National Living Wage, which will see the hourly rate for workers aged 21 and over rise to £12.71. This change, coming into effect in April next year, is projected to boost the annual earnings of approximately 2.4 million full-time workers by around £900.
Younger workers are set for an even more substantial relative increase. The National Minimum Wage for 18 to 20-year-olds will jump by 8.5% to £10.85 per hour, potentially adding £1,500 to the annual pay packets of full-time workers under 21 and narrowing the gap with the main living wage.
Furthermore, the rates for the lowest-paid age groups will also see improvement. The National Minimum Wage for 16 and 17-year-olds and apprentices will increase by 6% to £8.00 per hour.
Political Promise and Economic Reality
This move fulfils a pledge from Labour's election manifesto to remove what it termed 'discriminatory age bands' and work towards a single minimum wage for all adults. Chancellor Reeves stated that the rises would benefit around 2.7 million workers across the country.
'I know that the cost of living is still the number one issue for working people,' Ms Reeves said. 'Too many people are still struggling to make ends meet. And that has to change. That's why I'm announcing that we will raise the National Living Wage and also the National Minimum Wage, so that those on low incomes are properly rewarded for their hard work.'
Business Warnings and Expert Analysis
While welcomed by labour advocates, the announcement was met with caution from business leaders and economists, who warned of potential unintended consequences for youth employment.
Jane Gratton, deputy director of public policy at the British Chambers of Commerce, issued a stark warning: '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.'
Nye Cominetti, principal economist at the Resolution Foundation, offered a balanced perspective, acknowledging the benefits while highlighting the risks. 'Younger workers are set for an even bigger pay rise – but these steep increases risk causing more harm than good if they put firms off hiring and push up NEET rates,' he stated, referring to young people not in education, employment, or training.
Katherine Chapman, Director of the Living Wage Foundation, praised the move but noted that the new legal minimum would still fall short of the voluntary Real Living Wage, which is currently £13.45 across the UK and £14.80 in London and is calculated based solely on the cost of living.
