Budget boost for low-earners as minimum wage rises to £9.50 an hour

Rishi Sunak

Rishi Sunak will confirm one of the biggest increases in the minimum wage this week after independent advisers recommended that the main rate should rise to £9.50 an hour.

The Low Pay Commission, a panel of experts, has said that the national living wage, which is paid to the lowest earners aged 23 and over, should increase from £8.91 an hour to £9.50, a rise of 6.6 per cent.

The chancellor will announce in his budget on Wednesday that the government will accept the recommendation, meaning the new rates will take effect from the start of April next year.

Ministers hope the above-inflation increase will help low earners who are struggling with the cost of living and go some way to realising the prime minister’s aspiration of a “high-wage, high-skill, high-productivity economy”.

To someone working 35 hours per week, the increase will be worth an extra £1,074 a year before tax. Lower rates will continue to apply for younger workers.

The national living wage is the minimum hourly rate for those aged 23 or older. There are separate national minimum wages for workers aged 21 or 22, 18 to 20 and 16 or 17.

The minimum wage for 21 and 22 year olds will rise from £8.36 to £9.18, an increase of 9.8 per cent. For 18 to 20 year olds it will rise from £6.56 to £6.83, and for 16 and 17-year-olds from £4.62 to £4.81 — both increases of 4.1 per cent.

Sunak said: “This is a government that is on the side of working people. This wage boost ensures we’re making work pay and keeps us on track to meet our target to end low pay by the end of this parliament.”

The commission’s recommendation is in part a recognition of the pressures facing many Britons as the prices of energy, petrol and food rise and following the ending of the £20 a week uplift in universal credit. In a report earlier this year the commission estimated that its 2022 recommendation would be an increase to £9.42 an hour.

But the significant increase may aggravate some small businesses as they emerge from the pandemic and prepare for an increase in national insurance contributions to fund health and social care.

Some may decide to pass on the cost of higher wages to consumers through increased prices.

The increase also falls short of Labour’s demands for a minimum wage of at least £10 an hour.

Bridget Phillipson, the shadow chief secretary to the Treasury, said: “This underwhelming offer works out at £1,000 a year less than Labour’s existing plans for a minimum wage of at least £10 per hour for people working full-time.

“Much of it will be swallowed up by the government’s tax rises, universal credit cuts and failure to get a grip on energy bills. It’s clear that Labour is the only party serious about improving the prospects of working people.”

The 6.6 per cent rise is the second largest since 2004. George Osborne unveiled the largest rise of 7.5 per cent when the national living wage was created in 2016.

Separately, some Conservatives believe Sunak may boost public sector pay in Wednesday’s budget and spending review. Public sector pay was frozen during the pandemic last year except for NHS workers but Sunak could announce rises for workers such as teachers, police officers and civil servants.

The chancellor said at the weekend: “Obviously over the past year, we took a decision to have a more targeted approach to public sector pay, given that the year before there were large increases and obviously the private sector was seeing pay decreases last year, and people were on furlough.

“We thought that was reasonable and fair. Now going forward, we’ll have to set a new pay policy and that will be a topic for next week’s spending review.”

Following the Treasury announcement of a 6.6% increase in the National Living Wage, Jane Gratton, Head of People Policy at the BCC, said: “With rising energy costs, higher raw material prices, high levels of debt as a result of the pandemic and tax increases due, many firms are facing a cashflow squeeze. So while businesses support the minimum wage, the size of this increase – with less than six months’ notice – will cause significant concern, especially with so many smaller firms already struggling.

“There is a limit to how much more firms can continue to absorb rising costs before they have to raise their own prices adding to inflationary pressures. It is therefore vital that companies are not faced with any further up-front costs for the remainder of this Parliament. 

“The best way to sustainably increase wages is to help firms boost their skills and productivity.  

“If businesses are to lead our economic recovery, they desperately need room to breathe, rebuild their finances and have the confidence and capacity to invest, including in the training and development of their people.” 

Sp[aeking about the announcement Simon Bell, Founder of www.careermap.co.uk said: “Not only is this good news for people over 23 years old but it also means that for apprentices, the rate is increasing from £4.30 to £4.81. Although there is still a substantial gap between an apprentice salary and those over the age of 23, it is still a positive step in the right direction for people across the UK.”

“More recently, employers have often feared minimum wage increasing due to fears that it will lead to higher levels of unemployment. Many companies also fear having to make employees redundant to make up the increases in salary of other employees. Despite this, there has been no proven evidence to suggest this is the case at all, in fact, many employees and employers will find the increase in the national minimum wage has many positive impacts such as increased motivation of the workforce, less job losses and benefits to the overall companies success. There is still a lot of work to be done in terms of providing more monetary support to apprentices but, this is certainly a step in the right direction for the UK economy.”