More than a million low-paid workers in Britain will receive a pay rise of around 6% next year as the government promises to increase the national living wage to £12.10 an hour.
The Low Pay Commission, following Labor’s directive to ensure a “real living wage”, has outlined plans for the increase and could recommend a higher amount before the upcoming Budget.
Currently the national living wage is £11.44 per hour, and the proposed increase is part of Labour’s commitment to “raising the floor on wages”, according to Deputy Prime Minister Angela Rayner. She, together with Business Minister Jonathan Reynolds, tasked the Low Pay Commission with ensuring that the national living wage is in line with two-thirds of average income and reflects the cost of living, highlighting the importance of encouraging low pay incomes in the current economic climate.
The commission’s latest projections suggest that wages will need to rise by about 5.8% to keep pace with current earnings, a significant increase from the previous forecast of 3.9% made in March. The committee also noted that stronger-than-expected earnings growth in 2024 could push the required increase even further.
Young workers aged 18 to 20 are likely to see even bigger pay rises as ministers aim to standardize wages across all age groups. Currently, these workers can legally be paid £8.60 per hour, but the commission is moving towards a single adult rate, potentially putting them on par with workers aged 21 and over.
While the pay increase was welcomed as positive news for low-paid workers, business leaders have expressed concerns. Tina McKenzie, board member of the Federation of Small Businesses, warned that without the right support, mandatory pay increases will put major pressure on small businesses, making it harder for them to survive and recruit new employees. “Labor costs are now the biggest pressure on small businesses, with many responding to the April 2024 increase by becoming more cautious when hiring,” she said.
Paul Nowak, general secretary of the TUC, refuted criticism of Labour’s pay policy, comparing it to concerns raised when the minimum wage was introduced by the Blair government in 1999. also about this,” he claimed.
Nye Cominetti of the Resolution Foundation pointed out that while the minimum wage has risen consistently above inflation in recent years, the changes under Labour’s new mandate could see even bigger increases. He acknowledged that while the increase is good news for workers, companies might have hoped for a more modest adjustment. However, he also noted that fears of job losses due to rising minimum wages have not materialized so far.
Despite the positive outlook, Cominetti warned that as wages continue to rise, the risk of negative employment impacts increases, necessitating careful consideration by policymakers. “At some point the trade-offs between higher wages and potential job losses become material,” he said, adding that no clear answer has yet been given on the acceptable impact on employment.
A spokesperson for the Department for Business and Trade commented on the policy, saying: “We are changing the rules to put more money in the pockets of working people. But we have also made it clear that we must take into account the companies paying these wages, the employment prospects and the impact on the wider economy.”
The government remains focused on balancing the benefits of higher wages for workers with the needs of businesses and the overall economic impact.