​Minimum Wage Set for a Rise in 2025

In a prelude to this year’s Budget, the Chancellor has announced that the National Living Wage for workers aged 21 and over will rise to £12.21 an hour starting April 2025. The government’s decision, viewed as a substantial move toward achieving a “genuine living wage,” is set to impact over three million workers across the UK. However, business leaders have expressed concern that the increase may place additional pressures on firms, potentially affecting hiring and growth strategies.

The minimum wage increase is not limited to those over 21. For workers aged 18 to 20, rates will rise from £8.60 to £10 per hour, while apprentices will experience a significant uplift from £6.40 to £7.55 an hour. These adjustments reflect the government’s directive for the Low Pay Commission to consider the cost of living in its recommendations, a move that aligns with efforts to create a single minimum wage rate for all adults in the long term.

This increase builds on April 2024’s rise to £11.44 for workers aged 21 and over and aims to alleviate financial pressures faced by workers. According to Rachel Reeves, this change represents a “significant step” toward financial stability for lower-income workers, with particular benefits expected for young people and apprentices.

Although welcomed by labour advocates, the wage increase has raised concerns among businesses, particularly those in the retail and hospitality sectors. Kate Nicholls, CEO of UK Hospitality, warned that this policy could push high street businesses towards a financial tipping point, impacting employment, prices, and future investments. In light of the announced wage hikes, many businesses are reportedly approaching the Budget announcement with “even more trepidation.”

Nick Mackenzie, CEO of Greene King, noted that the cumulative impact of rising costs across the board remains a key concern for the industry. While supportive of fair wages, Mackenzie emphasised that persistent wage increases and taxes could lead to job cuts and less investment in the sector.

Labour unions and advocacy groups have supported the wage rise despite business concerns. Paul Nowak, general secretary of the Trades Union Congress, argued that fears of increased unemployment following wage rises have consistently been proven unfounded. Similarly, Claire Reindorp, CEO of Young Women’s Trust, highlighted that women, in particular, benefit from the increase, as they are more likely to be in lower-paid roles and thus more affected by cost-of-living pressures.

Speculation has also risen around how the government will support these wage increases amidst a forecasted £22 billion gap in public finances. The Chancellor is anticipated to raise employer National Insurance contributions, currently set at 13.8% on earnings above £175 a week, as part of a broader effort to fund essential public services, including the NHS. Additionally, reports indicate that the income threshold for employer contributions may be lowered, which would further increase the financial obligations of businesses.

The planned minimum wage increase and anticipated tax hikes have sparked a debate over the impact on the UK’s economic growth. While the government maintains that boosting the economy is a top priority, businesses warn that added costs could lead to price hikes for consumers and limit wage growth for other employees. Melanie Pizzey, CEO of the Global Payroll Association, pointed out that employers might reduce pay increases for those earning above the minimum wage as they attempt to manage rising operational costs.

As the nation awaits further details in the Budget announcement, the minimum wage increase has become a focal point in discussions about balancing worker support with sustainable business growth.