New minimum wage remit is a one-year holding position for the main adult rate, but could mean large pay rises for young workers 30 July 2024 The Government has chosen a steady-as-she-goes one-year holding position for the minimum wage in 2025, with the adult rate (the ‘National Living Wage’) likely to rise in line with average earnings, while workers under 21 may see faster pay rises as the age-specific minimum wage rate for 18-20 year olds is set to converge with the main National Living Wage, the Resolution Foundation said today (Tuesday). The Government has today published a new remit for the Low Pay Commission (LPC), which sets out its policy on future minimum wage rates. For the main adult rate (the ‘National Living Wage’) the new remit is a one-year holding position, and requires the LPC to recommend a National Living Wage rate for 2025 which would preserve its value relative to typical wages. This marks a slowdown in the rate of growth in the minimum wage compared with the approach taken by governments between 2015 and 2024, when the minimum wage rose faster than typical wages. Over this period, the ‘bite’ of the National Living Wage (its value compared to typical hourly earnings) increased from 52.4 per cent to 66.7 per cent. The Foundation notes that the Labour Government’s plan for next year’s National Living Wage is broadly the same as that set out by the previous Government in March 2024. In response to that old policy, the LPC had said that it expected the National Living Wage rate to reach £11.89 in April 2025 – up 3.9 per cent on April 2024. The new remit also asks the LPC to take into account expected trends in inflation until March 2026, reflecting Labour’s manifesto commitment to make the minimum wage a “genuine living wage … that accounts for the cost of living”. But the Foundation notes that today’s tweak to the remit is unlikely to have any practical impact on the 2025 rate. Currently, independent forecasters expect wage growth to outstrip inflation in 2025, with average forecasts of 3.1 per cent for average wage growth, and 2.1 per cent for inflation (as measured by the CPI). The bigger change in minimum wage policy unveiled today is the aim of achieving a single minimum wage rate for all workers. Although the remit does not give a timeframe, workers aged 18-20 look likely to benefit next year when the lower rate applying to them is set to be brought closer to the main rate of the National Living Wage, currently applying to workers aged 21 and above. The employment risks around the minimum wage are higher for younger workers, so the Government is right to ask the Low Pay Commission to tread carefully and examine the evidence, rather than immediately scrapping the youth rates. Overall, the Foundation notes that this approach suggests the Government is broadening its approach to improving low-paid work, with greater focus in the short term on new employment rights, and a Single Enforcement Body, via the forthcoming Employment Rights Bill. The Foundation views this as a sensible and measured approach given that this strengthening of employment rights would be the biggest shake up in a generation, and given that the UK’s minimum wage is already one of the highest in the world relative to typical pay. Nye Cominetti, Principal Economist at the Resolution Foundation, said: “During the election, Labour pledged to make the minimum wage a genuine living wage. What that means in practice remains unclear, with today’s announcement more of a one-year holding policy. Indeed, the LPC’s new remit is unlikely to produce a different minimum wage in 2025 than would have been reached under the previous Government’s plans. “The big policy change is reserved for younger workers, with the UK set to move towards a single rate for all adults – by putting the rate for 18-20-year-olds on a path to converge with the adult rate. “This relative lack of action on minimum wages suggests that the new Government’s initial focus when it comes to improving low-paid work will be through stronger employment rights in areas such as sick pay and zero-hours contracts, and better enforcement of those rights.”
