Younger workers could receive an even bigger increase in a bid to see 18-20 year olds paid the same as those over 21, making the same for all adults, regardless of age.
Chancellor Rachel Reeves is expected to announce the raise in tomorrow’s budget, helping more than a million low-paid workers receive a pay boost well above inflation rates.
The proposals would be expected to come into force in April 2025.
Around 1.6 million people currently earn the ‘national living wage’ of £11.44 an hour, which is the minimum wage for over-21s.
The National Minimum Wage (NMW) came into force under the Labour government in 1999. It started at £3.60 an hour for those 22 and older, and £3 for those aged 18-21.
It is currently £11.44 for ages 21 and over, £8.60 for ages 18-20 and £6.40 for under 18s and apprentices.
While unions and workers are expected to praise the move, businesses may be hit by a double whammy of pay rises and an increase in national insurance contributions from wages. There was already a significant rise in the NMW in April 2024, impacting business overheads.
But, studies have shown that an increase in the NMW can stimulate consumer spending as workers have more money in their pockets, which can benefit local businesses and the overall economy.
Similarly, workers earning a higher wage are less likely to rely on benefits, reducing the burden on government resources.
Do companies have to agree?
Any rise will be mandatory. It is a criminal offence if employers fail to pay the correct National Minimum and Living Wages to their workers. The rates apply to staff even if they are not paid by the hour. Any employer not paying the correct amount can be fined by HMRC.
But, there are exemptions to the rules:
- self-employed workers
- company directors
- volunteers
- members of the armed forces
- people living and working in a religious community
- prisoners
