A one-year holding policy on the minimum wage signals a shift of focus to employment rights

Today the Government published a new remit for the Low Pay Commission (LPC). The LPC are the independent body who recommend specific minimum wage rates to the Government – including the National Living Wage (NLW) which applies to workers aged 21 and over, and the age-specific rates for younger workers. But they make these recommendations based on the remit they are given by the Government. So, today’s announcement of the new remit for the 2025 rates is really the policy. Here we unpack what they have said.

For the 2025 National Living Wage, the new Government’s approach is broadly the same as the previous Government’s

What does the new remit mean for next year’s NLW? Most likely, it’s as you were. The new remit says the National Living Wage (NLW) shouldn’t drop below two-thirds of median hourly pay in 2025. The ratio to median hourly pay is referred to as the ‘bite’ of the minimum wage. The LPC believes that this ‘bite’ of two-thirds of hourly median pay was already reached with the current NLW – this was the end target of the remit which was in operation from 2020 to 2024. This means that the LPC will recommend a NLW uprating for 2025 based on a judgement about the rate of average wage growth.

This is what the previous Government’s policy called for – maintaining the bite at two-thirds median pay. As a result, the 2025 remit is a continuation of the previous Government’s policy in this respect.

There are two potential caveats to this. One is that the current (2024) NLW rate was based on a forecast of wage growth. If it turns out that this forecast underestimated wage growth, then the 2025 uprating would be greater than the expected growth in average pay, and vice versa if the forecast was an overestimate. Second, the specific language of the new remit says that the NLW should not fall below a two-thirds bite. This might imply it should not do so for the full financial year, which would be a slight change (with slightly more upwards pressure) compared to the recent approach, where the LPC recommended NLW rates to hit their bite target half way through the financial year.

Either way, the big picture is that for the 2025 NLW at least, the new remit is more or less the same as the previous Government’s policy. In April, the LPC estimated a 2025 NLW rate of £11.89 (a 3.9 per cent uprating) based on this policy. Although it’s worth noting that wage forecasts have since strengthened, so today a new estimate of the 2025 NLW rate might be somewhat higher, perhaps closer to £12 (giving an uprating of roughly 5 per cent).

Election promises to make the minimum wage a ‘genuine living wage’ have been implemented very cautiously – for now

But how can this more-of-the-same policy be compatible with Labour’s pre-election commitment to make the NLW a ‘genuine living wage’ (A New Deal for Working People) and a ‘real living wage’ (2024 Labour Manifesto)?

As it turns out, this did not mean raising the NLW to the real Living Wage rate of the Living Wage Foundation (calculated by the Resolution Foundation). Instead, the LPC are asked to ‘take into account’ expected trends in inflation up until March 2026 when recommending the NLW for April 2025. Although not stated explicitly, one interpretation is that they want to ensure the NLW rises at least in line with expected inflation.

In normal years, where the rate of inflation is less than that for wage growth, this requirement wouldn’t have an impact.  And that is currently the expectation for 2025: independent forecasters expect CPI of 2.1 per cent in 2025 and 3.1 per cent of wage growth. As a result, this addition to the remit shouldn’t have any impact on the calculations for the NLW in 2025.

Furthermore, this new remit only sets policy for 2025. This is an unusual move, with recent Governments setting 4-5-year remits. This holding policy leaves the Government room to refine and redefine how they want the LPC remit to take the cost of living into account in future years.

There is bolder action when it comes to the youth minimum wage rates

The main big policy change in the Government’s new remit is reserved for younger workers, with Labour committing to abolishing the ‘discriminatory’ lower age-specific rates. This (sensibly) won’t happen overnight. The LPC are asked to set the rate for 18-20-year-olds such that it converges on the NLW, while the rate for 16-17-year-olds is to rise ‘as high as possible’ without damaging their employment prospects.

Given that employment risks around the minimum wage are higher for younger workers, the Government is right to ask the Low Pay Commission to tread carefully and examine the evidence, rather than immediately scrapping the youth rates. But as the gap closes this will mean big pay rises for the around 750,000 younger workers earning below the National Living Wage.

Caution on pay is reasonable with big reforms on rights coming down the track

For the NLW, today’s remit is a holding, steady-as-she goes policy, which avoids any radical cost-of-living based change. This is a shift from the 2015-2024 era when NLW rates rose faster than average wages, and may disappoint those pushing for more.

But with major changes planned on employment rights (sick pay, unfair dismissal, ZHCs), and with the UK’s minimum wage already among the highest in the world relative to typical pay, this is sensible. The emphasis on improving low-paid work is moving away from pay and to conditions.