National living wage to rise by 6.7%

Businesses will be hit with a 6.7% hike in the national living wage to £12.21 from April 2025 with rates for younger workers rising by double digits

The Chancellor has confirmed the 2025 national living wage rise rates with a pay rise for up to three million minimum wage workers as the hourly rate is increased by inflation busting 6.7% increase.

The significant rise in the national living wage (NLW) from April 2025 will be worth £1,400 for a full-time worker over the age of 20, taking the annual salary to £23,809.76 before tax, which is £91.58 a day on a seven-and-a-half-hour shift.

The 6.7% increase is over three times higher than the most recent inflation figure, which fell to 1.7% in September.

Additionally, the national minimum wage (NMW) for those aged between 18 and 20 years will rise by 16% with a £1.40 hourly increase. This is the largest increase in this rate ever as Labour intends to combine minimum wage and living wage over time.

The minimum wage for 18 to 20-year-olds is currently £8.60 an hour, rising to £10. In total this will be adding £2,500 to the annual salaries of a full-time worker in this age range.

Chancellor Rachel Reeves said: ‘This government promised a genuine living wage for working people. This pay boost for millions of workers is a significant step towards delivering on that promise.’

When the Low Pay Commission published its recommendations in September 2024 from data provided by the Bank of England (BoE) it estimated a range for the NLW between £11.82 and £12.39, with a central estimate of £12.10 (5.8% rise).

Simon Michaels, director of HW Fisher said: ‘The government’s definition of “working people” appears to draw a distinction between small business owners and those they employee.

‘In reality, the term should encompass all contributors to a business, including the founders who have invested their time and resources to create opportunities for others.

‘Small businesses are the lifeblood of the economy, making up 99.2% of the total business population, and generating three-fifths of the UK’s private sector employment. Their contributions benefit the wider economy, often at great personal risk.

‘The potential move from the government to hike employers’ national insurance will have an indirect consequence on “working people” by any definition. With less money available for small businesses to invest, the opportunities for pay rises, staff benefits, and recruitment will inevitably decline.’

Additionally, the minimum wage for apprentices is also being increased dramatically from £6.40 to £7.55, a rise of 18%.

In total 3.5m people are set to receive a pay rise as a result of these changes.

Deputy prime minister, Angela Rayner said: ‘A proper day’s work deserves a proper day’s pay.

‘Our changes will see a pay boost that will help millions of lower earners to cover the essentials as well as providing the biggest increase for 18 to 20-year-olds on record.’

The Office for National Statistics has found that the number of low paid jobs has already fallen from 9.8% in 2023 to 3.4% in April 2024, possibly as a result of the continued rise in minimum wages. This is the lowest it has fallen since it was first recorded in 1977. In comparison, high paid roles fell by just 0.7%.

A low paid job in 2024 was defined as anyone earning less than £11.39 an hour.

Recruitment and Employment Confederation (REC) deputy chief executive Kate Shoesmith said: ‘We need to avoid artificially driving inflation with price rises, when interest rates should be starting to fall.

‘Businesses have set out to us and the government their concerns over their ability to continue to operate if there are further substantial increases to their cost base in the short-term – and very little on the horizon that points towards growth.

‘It’s the cumulative impact that is bothering employers most. The level of these new pay rises, following two previous years of substantial increases to national minimum wage, plus other ongoing cost pressures, in a tough market, with an increase in National Insurance Contributions expected in the Budget tomorrow, and big regulatory changes afoot via the Employment Rights Bill – that’s what businesses are weighing up.

‘Employers want to ensure their teams get the pay they deserve but many will also be thinking about how they balance that out. That might mean offering workers fewer hours, or not hiring for a vacancy for a while, or putting up prices to consumers. The government promised to prioritise growth – it’s really needed if employers are to manage their way through these changes.’

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