We judge that this recommendation for the NLW will achieve the target first set by the Government in 2019 – the NLW will be equal to two-thirds of median hourly pay for those aged 21 and over. In addition, from April 2024 the NLW will be extended to 21 and 22 year olds, fulfilling a recommendation we first made in 2019.
This will be the largest ever increase in the minimum wage in cash terms and the first time it has increased by more than £1. The size of this increase is driven by the strength of pay growth across the economy, which is forecast to continue into next year.
Bryan Sanderson, LPC Chair:
The National Living Wage has delivered an improved standard of living to thousands of people who care for our children and elderly, work in farms and shops and at many other essential jobs. These efforts over the lifetime of the NLW mean over £9,000 p.a. more to a full time worker without any increase in unemployment.
This hasn’t been easy for employers, with the economy facing a range of unprecedented challenges in recent years. The high degree of political and economic uncertainty has made assessing and forecasting the performance of the economy, and therefore our task, very difficult. It is a tribute to my fellow Commissioners that we have continued to achieve consensus.
Our new recommendation of a National Living Wage of £11.44 attempts to steer a path through this uncertainty and achieve the government target of two-thirds of the median wage, an outcome which if accepted would position the U.K. at the forefront of comparable economies.
As every year, we heard evidence from employers across the UK about the pressures they faced. Costs in most sectors have continued to rise, and uncertainty has made it difficult to plan for and invest in the future. Small and medium-sized businesses report the greatest concerns, and firms in low-paying sectors are more worried about reduced consumer demand, costs of energy and the cost of labour than firms in other sectors.
At the same time, the low-paid workers we spoke to this year painted a picture of growing hardship. Those on the lowest incomes have felt the rising cost of living most sharply. We heard accounts of foodbank usage and indebtedness as targeted support introduced last year began to fall away.
We believe our recommendation will restore the real value of the NLW, which has been eroded through the recent cost of living crisis. Our judgement is that this increase will not cause significant risk to employment prospects.
Alongside the NLW, we have recommended large increases to NMW rates for young workers and apprentices. These increases reflect the strength of the youth labour market and aim to prevent the wage floor for young people being cut adrift from prevailing wage rates in the wider labour market.
- The LPC’s recommendations were submitted to the Government on 20th October 2023. The Government has announced acceptance of those recommendations.
- The LPC’s recommendation of the NLW is intended to meet the Government’s target for this rate to reach two-thirds of median earnings in 2024. The Government’s remit to the LPC, which determines the Commission’s work through the year, was published in March.
- The National Living Wage (NLW) is currently the statutory minimum wage for workers aged 23 and over, although this will fall to 21 and over from April 2024. Different minimum wage rates will continue to apply to 18-20 year olds, 16-17 year olds and apprentices aged under 19 or in the first year of an apprenticeship.
- Following LPC recommendations in 2019, the age threshold for the NLW was lowered from 25 to 23 in April 2021 and will now be lowered to 21 next April.
- Assessing the figure needed to reach the NLW target relies on both reported data on wage levels and forecasts for future years. There is considerable uncertainty around both actual data and forecasts. The LPC’s recommendations reflect Commissioners’ judgements on the reliability of the available numbers.
- LPC’s assessment of wage growth to date relies on the ONS’s Annual Survey of Hours and Earnings (ASHE) and Average Weekly Earnings (AWE) series. These are supplemented by HMRC’s Real Time Information (RTI) data.
- In making judgements, the LPC have relied on wage forecasts from the Bank of England and HM Treasury’s Independent Panel of Economic Forecasts.
- They last published projections of the NLW rate needed to meet the two-thirds target in March. At the time, the projected range was between £10.90 and £11.43, with a central estimate of £11.16. By the time of the recommendations in October, this projection had increased to a range between £11.30 and £11.65.
- This sharp rise reflects the continuing strength of both actual and forecast pay growth across the economy since March. The Bank of England’s forecast for pay growth in 2023 rose from 4 per cent in February to 6 per cent in August. The median forecast in HM Treasury’s panel for October was 6.6 per cent.
- Rates for workers aged under 21, and apprentices, are lower than the NLW to reflect lower average earnings and higher unemployment rates. International evidence also suggests that younger workers are more exposed to employment risks arising from the pay floor than older workers. Unlike the NLW (where the possibility of some consequences for employment have been accepted by the Government), the LPC’s remit requires the setting of the rates for younger workers and apprentices to be as high as possible without causing damage to jobs and hours.
- The LPC are currently reviewing the broader framework for minimum wages to inform the Government’s decisions after 2024. The current thinking is that it should move towards an adult rate that begins at age 18, but they will have more to say about how they might approach this and the associated evidence base in their advice to Government on the Post 2024 minimum wage framework.
- The National Living Wage is different from the real Living Wage and the London Living Wage calculated by the Living Wage Foundation. Differences include that: the UK Living Wage and the London Living Wage are voluntary pay benchmarks that employers can sign up to if they wish, not legally binding requirements; the hourly rate of the UK Living Wage and London Living Wage is based on an attempt to measure need, whereas the National Living Wage is based on a target relationship between its level and average pay; the UK Living Wage and London Living Wage apply to workers aged 18 and over, the National Living Wage to workers aged 23 and over. The Low Pay Commission has no role in the UK Living Wage or the London Living Wage. It is possible to operate the Living Wage yet an employer be in breach of NMW regulations.
- The Accommodation Offset is an allowable deduction from wages for accommodation, applicable for each day of the week. In April 2024 it will increase to £9.99 per day.
- For an NLW worker working 37.5 hours per week, the increases announced today will increase their annual pay by £1,994.36 and their monthly pay by £166.20.
- The Low Pay Commission is an independent body made up of employers, trade unions and experts whose role is to advise the Government on the minimum wage. The rate recommendations introduced were agreed unanimously by the Commission.
- The current Low Pay Commissioners are: Bryan Sanderson (Chair), Kate Bell, Matthew Fell, Louise Fisher, Martin McTague, Professor Patricia Rice, Simon Sapper and Professor Jonathan Wadsworth.