Minimum Wage Set to Rise Again: Will It Lift Incomes or Cost Jobs?
Posted by Emma on 6th Aug 2025 Reading Time:
The UK’s minimum wage could climb to £12.71 per hour from April 2026, according to the latest projections by the Low Pay Commission (LPC). This would mark a 4.1% rise from the current £12.21 per hour and aims to ensure that the National Living Wage (NLW) remains no less than two-thirds of median earnings—a key government benchmark.
However, the final figure may fluctuate based on economic conditions, with the LPC suggesting a potential range of £12.55 to £12.86 per hour. This uncertainty reflects ongoing volatility in wage growth, inflation, and wider labour market dynamics.
A Government-Backed Target—But Not a Guarantee
While the LPC provides formal recommendations each October, the government retains ultimate control over setting the final rate, which takes effect the following April. The Commission’s remit, published by the government this week, reiterates the importance of aligning minimum pay with broader economic goals. It urges the LPC to factor in cost-of-living pressures, competitiveness, employment impacts, and macroeconomic trends.
This year’s projection has risen from earlier estimates due to unexpectedly strong wage growth. Back in May, the LPC estimated a 3.6% increase to £12.65. However, that forecast has now been revised upward in light of data showing annual wage growth of 5.1% in May 2025, with expectations of slower growth in the coming year.
A Single Adult Rate on the Horizon?
The government is also considering eliminating age-based pay bands, which currently offer lower minimum wage rates for younger workers. Presently, 18–20-year-olds earn a minimum of £10 per hour, significantly below the adult rate. Ministers have labelled these differentials “discriminatory”, and the LPC has been tasked with consulting employers, trade unions, and workers on moving towards a single adult minimum wage.
Such a change would signal a significant policy shift and could improve wage fairness among younger workers, but it also raises concerns about potential impacts on youth employment.
The Industry Response: Costs, Cuts, and Consequences
The hospitality sector, which employs a large proportion of minimum-wage workers, has voiced serious concerns about the proposed increases. Kate Nicholls, Chief Executive of UKHospitality, warned that while raising living standards is a noble goal, the pace and timing of increases must reflect economic realities.
“With significant new costs, such as the increase made to employer national insurance contributions, already hitting businesses hard, any significant wage hike may cost jobs,” Nicholls said.
She added that escalating employment costs are already forcing some businesses to reduce staff hours and even make redundancies. The risk, she argues, is a counterproductive cycle: higher wages for some could lead to job losses or reduced hours for many, ultimately undermining the very purpose of wage increases.
A Tipping Point in Wage Policy?
The UK currently has one of the highest minimum wage rates in Europe, second only to France when measured relative to median earnings. Yet this milestone comes with challenges. The Bank of England has repeatedly flagged wage growth as a contributing factor to persistent inflation, a concern echoed across several industries.
Around 6.5% of British workers are on the minimum wage, and many others earn only slightly more. With the labour market already showing signs of strain, any further increases could have wide-reaching effects—not just on employment levels, but on business sustainability, price stability, and economic growth.
Balancing Act Ahead
The LPC acknowledges the complexity of its task: while the target is formulaic—two-thirds of median earnings—the outcome cannot be driven by maths alone. Instead, the Commission will aim to balance the needs of workers and employers in its final recommendations, due by October 2025.
As wage policy continues to evolve, the UK finds itself at a critical juncture. The decision on whether to proceed with another meaningful rise in the minimum wage is more than a number—it’s a statement about how the country defines fairness, growth, and opportunity in a shifting economic landscape.