The new NLW rate for 2024/25, which has been announced at a higher level than originally proposed
Source: Gov.UK CPI based on September in year
What gets revealed either side of a fiscal statement can often throw a light on measures that the Treasury find awkward to include in the main presentation. The announcement on the day before the Autumn Statement of the 2024/25 National Living Wage (NLW) and National Minimum Wage (NMW) rates is a case in point.
As we noted in an earlier Bulletin, the Chancellor had trailed in October that the NLW rate would rise to over £11 an hour (from the current £10.42) as well as being extended down to 21 year olds (from the current 23 minimum age). Yesterday’s announcement revealed a figure well over £11 and 1p above the top of the band proposed by the Low Pay Commission back in March. The new rates are:
|Rate||From 1/4/2024||From 1/4/2023||Increase|
|£ per hour||(%)|
|NLW Age 21* + above||11.44||10.42||9.8|
|NMW Age 21-22*||N/A||10.18||12.4*|
|NMW Age 18-20||8.60||7.49||14.8|
|NMW Age 16-17||6.40||5.28||21.2|
* NLW applies from age 21 from 1/4/2024, previously 23
The 9.8% NLW increase is well above the current rate of inflation (4.6% CPI in October 2023) and comfortably exceeds the latest Office for National Statistics (ONS) earnings growth figures for July-September of 7.9% (including bonuses) and 7.7% (excluding bonuses). The size of the rise is driven by the Government’s longstanding goal to bring the NLW up to two thirds of median earnings by April 2024 for workers aged over 21. This also explains the jumps in the NMW for those under age 21, bringing them closer to the NLW level they will eventually move into.
The large increases are something of a problem for the Chancellor:
- It was not so long ago that Mr Hunt was saying that pay rises above inflation would be a ‘terrible mistake’ and fuel inflation.
- On the day that the NLW announcement was made, the Governor of the Bank of England told the Treasury Committee that wage growth remained too high, creating an upside risk to inflation. Of late, Mr Hunt (and his boss) have focussed on their ‘success’ in halving inflation in 2023.
- The sharp jump in the NLW will directly benefit 2.7m employees and indirectly benefit many more – a £1.02 an hour increase will ripple some way up through wage scales. That will add to business (and Government) costs, potentially countering the increased investment Mr Hunt wishes to encourage via his widely anticipated ‘full expensing’ extension.
- A 10%ish NLW rise contrasts awkwardly with the likely continued freeze in the personal allowance.
- Similarly, the NLW rise may shine an unfavourable light on benefit increases, particularly if working benefits are linked to October 4.6% CPI, as has been rumoured.
The 2024/25 NLW equates to £20,821 a year, based on a 35-hour week. That is a number worth remembering when the New State Pension, assuming a (far from certain) 8.5% increase, will be £11,502…
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