Budget 2024: Minimum wage to rise to £12.21 an hour next year

Beginning in April, minimum wage rates will increase, with hourly pay for individuals over 21 expected to reach £12.21, as confirmed by the chancellor prior to Wednesday's Budget announcement.

Rachel Reeves described the salary increase as an important advancement in fulfilling Labour’s commitment to providing workers with a "real living wage."

Workers between the ages of 18 and 20, along with apprentices, will also experience a rise in their minimum hourly wage.

The government announced that over three million employees will gain from this initiative. However, companies have expressed concerns that the increased expenses might lead them to reduce their recruitment.

Starting in April 2025, the minimum wage for individuals over 21, officially referred to as the National Living Wage, will see an increase of 6.7%, going up from £11.44 to £12.21 per hour. This year, the rate was raised from £10.42 to £11.44.

For individuals aged 18 to 20, the minimum wage will increase from £8.60 to £10. Earlier this year in April, it had already been raised from £7.49.

Apprentices are set to receive the most significant wage increase, rising from £6.40 to £7.55 per hour. Before this year, their hourly rate was £5.28.

The Treasury announced that the significant increase in the minimum wage for those under 21—the biggest ever—represents the initial move towards establishing a uniform wage rate for all adults.

This follows the government's directive to the Low Pay Commission, which sets minimum wage levels, asking them to take the cost of living into account in their assessments.

Each year, the government establishes the amounts for the National Living Wage and the National Minimum Wage, which come into effect the following April.

Nye Cominetti, the chief economist at the Resolution Foundation think tank, mentioned that although the rise in wages is "positive news" for those with lower incomes, the 77p increase for employees aged 21 and over is less than what was seen in the past two years.

However, she mentioned that the modest increase was reasonable given the anticipated increase in National Insurance contributions for employers outlined in the Budget.

Business owners, especially those running smaller enterprises, have expressed worries about the effects of increased payroll costs and changes to employee rights regulations.

Christine Dobson Moore, who runs the Sanwitches Cafe located in Sabden, close to Burnley, mentioned that her business was already having difficulty covering payroll for her staff.

"To be honest, it's more peaceful now than it used to be," she remarked. "Many of the politicians haven't experienced life like we have; they're out of touch with our reality."

Kate Nicholls, the CEO of the UK Hospitality trade association, expressed that companies will be viewing the upcoming Budget with heightened concern after the news of the minimum wage hikes.

"Attempting to make ends meet by taking money from high street stores will ultimately harm the hospitality sector. This could lead to job losses, deter future investments, raise prices for consumers, and jeopardize the survival of businesses," she stated.

Nick Mackenzie, the CEO of the pub chain Greene King, mentioned on the BBC’s Today program that the recent increase in the minimum wage was "a bit more than we anticipated."

He emphasized that what truly matters for the industry is the "overall impact" of increasing costs faced by businesses.

When asked whether increasing expenses for higher salaries and taxes would result in layoffs and reduced investment, Mr. Mackenzie replied, "Continuously increasing costs for businesses will ultimately lead to that outcome."

A representative from the Conservative Party stated that "any increase will be completely undermined if Labour declares tax hikes on ordinary workers," referring to the Budget that was presented on Wednesday.

Paul Nowak, the General Secretary of the Trades Union Congress, spoke in support of the increase.

"Whenever the minimum wage is increased, there are always those who claim it will lead to higher unemployment. Yet, they are proven wrong each time," he stated.

Claire Reindorp, the CEO of Young Women's Trust, endorsed the raise, emphasizing that women are often in low-paying jobs. She pointed out that, for a long time, they have been disproportionately affected by the financial struggles in the country.

There has been much discussion about the tax increases that Labour is likely to reveal, with Reeves stating that there is a £22 billion gap in the public finances that needs to be filled.

Employers are required to contribute National Insurance, which is an additional cost alongside employee salaries. The chancellor plans to increase this and other taxes to generate more funding for public services, such as the NHS.

At present, employers are required to contribute 13.8% on any employee's income that exceeds £175 per week.

However, Reeves is anticipated to reduce the income level at which employers begin to pay the tax. Together, these two actions are projected to generate around £20 billion.

This action is believed to be the biggest source of income in the Budget.

This has also sparked concerns about a possible ripple effect, especially since the government has stated that boosting the UK economy is a key focus.

Companies have cautioned that adding extra expenses will make it more difficult for them to invest, recruit employees, and generate jobs.

Sometimes, companies might choose to raise prices for their customers to cover the increased expenses. However, when it comes to employee salary increases, employers might limit them as they seek ways to cut costs.

Melanie Pizzey, the CEO of the Global Payroll Association, which represents payroll professionals, indicated that companies might restrict salary increases for employees earning above the minimum wage in an effort to manage expenses.