Pay boost for millions as Labour raises minimum wage to £12.21 an hour – but is it enough?

Some three million low-paid workers are set for a pay rise in April 2025, chancellor Rachel Reeves has confirmed, when the minimum wage for over-21s increases to £12.21 an hour.

Employees aged 18 to 20 and apprentices will also see their minimum hourly pay increase, from £8.60 to £10 and £6.40 to £7.55 respectively.

The pay hikes will transform the lives of workers, chancellor Rachel Reeves said in today’s (30 October) autumn budget.

“It was the Labour government that introduced the national minimum wage in 1999. It had a transformative impact on the lives of working people,” she said.

“[The new increases are] A Labour policy to protect working people, being delivered by a Labour government once again.”

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It comes after the government instructed the Low Pay Commission – the body responsible for setting minimum wage rates – to include the cost of living in its calculations.

The hike will make a “real difference”, said TUC general secretary Paul Nowak.

“The independent Low Pay Commission has looked at a range of economic evidence before making this recommendation. They know employers can absorb this increase,’ he added.

How much will the minimum wage increase?

The minimum wage for employees aged 21 and above is known officially as the National Living Wage.

From April, it will increase by 6.7% to £12.21 per hour – an increase worth £1,400 a year for a full-time worker over the age of 21.

Employees aged 18 to 20 and apprentices earn lower rates. However, they will also see their minimum hourly pay increase, from £8.60 to £10 and £6.40 to £7.55 respectively.

This will increase more in coming years, Reeves said today.

“For the first time, we will move towards a single adult rate, phased in over time,” she said.

Rebecca Florisson, principal analyst at the Work Foundation at Lancaster University, described it as a “critical boost” to low-income workers.

“It is particularly welcome that the National Minimum Wage for 18 to 20 year olds will increase by £1.40 per hour, representing the largest single increase on record,” she said.

“Young workers (18-24) are twice as likely as other workers to be in severely insecure work and have borne the brunt of higher living costs such as rising rents in recent years.”

Nye Cominetti, principal economist at the Resolution Foundation think tank, said that the increase to the National Living Wage was “good news”. It is, however, not as large as it might sound.

“While large in cash terms, this latest increase [for workers over 21] is actually smaller than each of the last two years, when the minimum wage rose by almost 10%,” he said.

Nonetheless, he described the smaller increase as “sensible” in the context of an expected increase employer National Insurance contributions, adding: “The government may want to take a more ambitious approach in future years.”

Cominetti urged the the Low Pay Commission to monitor the “employment effects” of a higher minimum wage – including whether firms are switching to self-employed labour to minimise their tax bills and employment rights obligations.”

Florisson echoed this concern about enforcement.

“It is now vital that this money reaches the pockets of those in low-paid work,” she said.

“This announcement must be backed up by more resources for the new Fair Work Agency to ensure workers get what they are owed. The ONS estimates that 334,000 people were underpaid in April 2022, and current enforcement resourcing means that many employers are unlikely to be inspected or held to account.”

The new higher rate is still lower than the £12.60-an-hour standard calculated by the Living Wage Foundation. This is paid voluntarily by 15,000 UK employers.

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