A press release from the Treasury at the start of this week was headlined ‘Chancellor announces major increase to National Living Wage [NLW]’. The release’s timing probably had more to do with where the Chancellor was – at the Conservative Party conference in Manchester – than its newsworthiness. If there is no scope for cutting taxes, then announcing wages increases is not a bad substitute.  

The Low Pay Commission (LPC), whose job it is to set the NLW and the National Minimum Wage (NMW), issued a consultation back in March 2023 which proposed an NLW rate from next April of between £10.90 and £11.43  an hour with a central estimate of £11.16. That would represent a 7.1% rise on the current rate of £10.42. The LPC’s consultation closed in early June and on Monday Jeremy Hunt said the minimum figure would be at £11.00 an hour.   

The forthcoming NLW decision has added significance because in 2019 the government set a target that the NLW should equal two thirds of median pay by 2024/25. As the press release also noted, April 2024 was also that time at which the NLW minimum age would be reduced from the current 23 to 21. At present the NMW for 21–22-year-olds is £10.18. 

The precise figures for 2024/25 are likely to emerge in the Autumn Statement once the LPC crunches the latest pay data to arrive at its final recommendation. The most recent annual rate of average weekly earnings growth (including bonuses) was 8.5% for the May-July period. When the LPC issued its consultation six months ago, the corresponding figure (for November 2022 – January 2023) was 5.7% (6.5% excluding bonuses). 

If the settled figure is £11.00 an hour – which looks low, given the above – then it will mean that by April 2024 the NLW will have risen by 52.8% since its introduction in April 2016. Assuming inflation will be around 4% by April 2024, the corresponding increase of the CPI over the same period will be about 34%. Take a slowing earnings growth to April 2024 of 5% and average earnings will have grown by about 38%.  

Comment

The NLW increase will affect over two million employees (and their employers). One point the Chancellor’s press release failed to explain was the inflationary impact of countenancing pay increases of at least 5.5%. The Bank of England would not consider that a level compatible with 2% inflation.

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