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The minimum wage will increase in April, with hourly rates for over-21s expected to rise to £12.21 an hour, the Chancellor confirmed ahead of Wednesday's Budget.
Rachel Reeves said the pay rise marked a “significant step” towards delivering Labor’s promise of a “real living wage” for workers.
Employees aged 18 to 20 and apprentices will also see their minimum hourly wage increase.
The government said more than three million workers would benefit, but businesses warned the higher cost could force them to cut back on hiring.
How much will the minimum wage increase?
The minimum wage for over-21s, officially known as the National Living Wage, will increase by 6.7%, from £11.44 to £12.21 from April 2025. This year it is increased from £10.42 to £11.44 an hour. -years, the minimum wage will increase from £8.60 to £10. In April this year the rate was increased by £7.49. Apprentices will get the biggest pay rise, from £6.40 to £7.55 an hour. Before this year it was £5.28.
The Treasury said a big rise in the minimum wage for under-21s – the biggest on record – marked the first step towards a single rate for all adults.
It comes after the Government asked the Low Pay Commission, which recommends minimum wage rates, to include the cost of living in its calculations.
The National Living Wage and National Minimum Wage rates are set each year by the government, with the new rates coming into force the following April.
Nye Cominetti, senior economist at the Resolution Foundation think tank, said that while the increase was “good news” for low earners, the 77p increase for workers over 21 was lower than that of each of the last two years.
But she said the more modest increase was “reasonable” in the context of the planned increase in national insurance contributions for employers in the Budget.
Business owners, particularly smaller ones, have expressed concerns about the impact of rising payrolls and workers' rights reforms.
Christine Dobson Moore, owner of Sanwitches Café in Sabden, near Burnley, said her business was already struggling to pay its employees.
“To be honest, it’s quieter than before,” she said. “A lot of politicians haven’t lived in the real world, that’s not us.”
“Higher than we thought”
Kate Nicholls, chief executive of trade group UK Hospitality, said businesses would approach the Budget with “even greater trepidation” following the announcement of minimum wage increases.
“Trying to balance the books of big business will only leave hospitality as collateral damage – threatening jobs, future investment, price increases for consumers and the viability of the business,” he said. she declared.
Nick Mackenzie, the boss of the Greene King pub chain, told the BBC's Today program that the minimum wage increase was “slightly higher than we were considering”.
But he stressed it was the “cumulative effect” of rising costs for businesses that was “critical” for the industry.
Asked whether the rising costs of paying higher wages and taxes would lead to job cuts and less investment, Mr Mackenzie said: “If you continue to impose costs on businesses, it is going to happen.”
But Paul Nowak, general secretary of the Trades Union Congress, said: “Every time the minimum wage increases, some people predict that this will lead to higher unemployment. Every time they are wrong.”
Claire Reindorp, chief executive of the Young Women's Trust, also supported the rise, saying women were “more likely to be in low-paid work, leaving them at the heart of the financial crisis for too long in this country.” .
There has been speculation about the tax rises Labor would announce, with Reeves saying there was a £22 billion “hole” to fill in the public finances.
National insurance, paid by employers on top of the wages they pay, is one of several taxes set to be increased by the Chancellor to increase funding for public services, including the NHS.
Employers currently pay a rate of 13.8% on a worker's earnings above £175 per week.
But Reeves should also lower the threshold at which employers start paying the tax. The two measures combined are expected to raise around £20 billion.
This decision is considered the largest source of revenue in the budget.
It also raised questions about a possible knock-on effect when the government said growing the UK economy was a top priority.
Businesses have warned that imposing additional costs on them would make it harder to invest, hire people and create jobs.
In some cases, businesses could pass on higher costs to customers by raising prices, but workers' pay increases could be limited as employers seek to save money.
Melanie Pizzey, chief executive of the Global Payroll Association, the trade body for payroll professionals, suggested that companies could limit pay rises for workers earning more than the minimum wage in an attempt to keep costs down. low level.
