Largest ever cash increase to the minimum wage

Today, the authorities have declared that they have approved the Low Pay Commission's advice regarding the lowest salary rates to be implemented from April 2024. The suggested rates by the LPC are disclosed further in the text.

Our evaluation suggests that the proposal for the National Living Wage (NLW) will meet the objective previously established by the Government in 2019, which aimed for the NLW to correspond to 66% of the median hourly income for individuals aged 21 and above. Furthermore, starting April 2024, the NLW will also be applicable to those aged between 21 and 22 years old, fulfilling a suggestion we had initially put forth in 2019.

This will be the biggest rise ever recorded for the minimum wage in actual money value and it's the first time that it has increased more than £1. This rise is happening because of the powerful growth in pay happening all over the economy, which is estimated to keep growing in the coming year.

The head of LPC, Bryan Sanderson, stated:

The National Living Wage has been successful in boosting the quality of life for numerous individuals who are employed in important roles such as caring for the elderly and children, working in shops and farms, and fulfilling other crucial jobs. The NLW has been in motion for some time now, and it has resulted in a full-time worker receiving an extra £9,000 annually without any negative impact on job availability.

Employers have been facing a lot of difficulties due to various unprecedented challenges that the economy has been encountering in recent years. With high levels of political and economic uncertainty prevailing, it has become increasingly difficult to assess and predict the economy's performance. As a result, it has become a challenging task for us to manage our responsibilities. However, it is a remarkable accomplishment for my fellow Commissioners and me that we have been able to maintain agreement.

In order to navigate the unclear situation and meet the objective set by the government of two-thirds of the median wage, we propose a fresh suggestion: the National Living Wage at the rate of £11.44. If this proposition is approved, the United Kingdom is likely to stand out from countries with similar economic conditions.

Like every year, employers throughout the UK have shared their struggles with us. Most industries are dealing with increased costs, and unpredictability is making it hard to prepare for the future and make investments. Small and medium-sized enterprises are especially worried, and companies in sectors with lower salaries are particularly concerned about decreased demand from consumers, expenses related to energy, and labour costs compared to those in other fields.

During our recent interviews, lower-paid employees expressed their increasing struggles. People with the least income have been most affected by the increasing cost of essential goods and services. Some interviewees mentioned relying on food banks and facing debt, especially as some of the specific aid they received last year is no longer available.

We're confident that our suggestion can bring back the NLW's true worth that got diminished due to the current high cost of living. We think that this hike won't pose a major threat to job opportunities.

In addition to the National Living Wage, we have proposed significant boosts to the rates of the National Minimum Wage for apprentices and young employees. These increases are based on the robustness of the job market for young workers and are designed to keep their wages in line with the existing standards across the wider labor market, so that they don't fall below the accepted minimum pay level.

The suggestions of the LPC were presented to the authorities on the 20th day of October in the year 2023. As of today, the Government has declared their approval of such suggestions.

The recommendation made by the LPC regarding the NLW is aimed at reaching the Government's goal of having this rate reach 66% of median earnings by 2024. The Government set out its instructions to the LPC earlier this year, which guides their activities throughout the year. These instructions can be found in the published document available here.

The NLW is the lowest wage that employers are legally required to pay to workers who are 23 years or older. However, starting from April 2024, this age requirement will be lowered to 21 years and above. Other age groups, such as those who are 18-20 years old, 16-17 years old, and apprentices who are under the age of 19 or in their first year of apprenticeship, will have different minimum wage rates.

In 2019, the LPC suggested that the NLW age threshold should be decreased, and as of April 2021, it has been lowered to 23. Next year, in April, the age threshold will be brought down further to 21.

To determine the required amount to achieve the National Living Wage (NLW) objective, we must rely on reported information on salary rates and future predictions. However, these numbers come with much ambiguity and unpredictability. As a result, the suggestions regarding the NLW target from the LPC will depend on the Commissioners' assessment of the reliability of the data they have at hand.

We have evaluated how much people are earning through the ONS's Annual Survey of Hours and Earnings (ASHE) and Average Weekly Earnings (AWE) series. To support this information, we also looked at HMRC's Real Time Information (RTI) data.

When forming our opinions, we have utilized pay predictions provided by the Bank of England and the Independent Panel of Economic Forecasts from HM Treasury.

In March, we shared our predictions on how much the NLW rate would need to be in order to reach the two-thirds target. Our estimated range was £10.90 to £11.43, with an average prediction of £11.16. However, when we made our recommendations in October, our projected range had gone up to £11.30 to £11.65.

The significant increase indicates that the economy's pay growth is steadily increasing since March, both in real and predicted terms. The Bank of England predicted pay growth for 2023 has risen from 4% in February to 6% in August, while HM Treasury's panel forecasted a median of 6.6% for October.

The pay rates for individuals under the age of 21 and apprentices are lower than the National Living Wage (NLW) due to their earnings being typically lower and experiencing higher rates of unemployment. Research from other countries has shown that younger workers are more susceptible to employment risks due to minimum wage regulations compared to older workers. However, unlike the NLW, where the government has acknowledged some potential negative consequences on employment, the Low Pay Commission (LPC) is tasked with setting the rates for young workers and apprentices as high as possible without negatively affecting employment opportunities and hours.

At the moment, we are examining the wider structure of how minimum wages work so that we can assist the Government in its decisions after 2024. Our initial thoughts are that we should start implementing an adult rate that begins at 18 years old. However, we will elaborate more on this topic and provide supporting evidence in our guidance to the Government on the minimum wage framework beyond 2024.

The National Living Wage is not the same as the UK or London Living Wage determined by the Living Wage Foundation. There are several differences between them, such as that the UK and London Living Wage are voluntary for employers to follow and not legally required. Additionally, the hourly rate for the UK and London Living Wage is established based on an assessment of need, while the National Living Wage is set according to a specified correlation with average pay. Another dissimilarity is that the UK and London Living Wage is applicable to individuals aged 18 and over, whereas the National Living Wage applies only to those aged 23 or above. The Low Pay Commission bears no responsibility for the UK or London Living Wage.

The Accommodation Offset is a deduction that can be made from your wages to cover the cost of accommodations every day of the week. Starting in April 2024, the deduction will be raised to £9.99 per day.

If you're a worker who earns the National Living Wage and works for 37.5 hours each week, the recent announcement stating the proposed increases would result in a boost of £1,994.36 in your yearly income and £166.20 in your monthly wage.

The Low Pay Commission is a group of impartial individuals consisting of employers, labor unions, and knowledgeable professionals. Its purpose is to provide guidance to the Government regarding the minimum wage. The suggestions for the wage rate that were presented today were collectively decided upon by the Commission.

The individuals currently serving on the Low Pay Commissioners board are: Bryan Sanderson as Chairman, Kate Bell, Matthew Fell, Louise Fisher, Martin McTague, Professor Patricia Rice, Simon Sapper and Professor Jonathan Wadsworth.

If you need to reach Bryan Sanderson, you can get in touch through the press office of the Low Pay Commission by calling 07341 098734.