Living wage workers to receive pay rise in April as part of chancellor’s budget plans

Experts say the increase is sorely needed by low-paid workers, but warn it could put a strain on employers who face a “double whammy” with rises to National Insurance 

Chancellor Rishi Sunak is expected to reveal a 6.6 per cent increase to the national living wage in tomorrow’s budget announcement.

The increase means from April, the minimum hourly rate for those over 23 will rise to £9.50 from £8.91.

The chancellor is also expected to announce increases to the minimum wage for other age groups. Those aged 21-22 will see their minimum wage increase to £9.18 an hour, up from £8.36, while apprentices will see a rise to £4.81 from £4.30.

Sunak has not made any indications that there would be a rise for those under the age of 21.

The national living wage is the statutory minimum wage for those over the age of 23, and is different from the Living Wage as calculated by the Living Wage Foundation.

The increases are in line with the recommendations of the Low Pay Commission – the statutory body responsible for advising the government on the level of the minimum wage – and come amid growing pressure on the government to help low-paid workers hit by the pandemic.

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However, while the pay rise has been widely welcomed, some business groups are concerned about the impact it could have on firms given the current economic climate.

Jane Gratton, head of people policy at the British Chambers of Commerce, said the increase could be a concern for businesses suffering a “cash flow squeeze” because of the pandemic.

“While businesses support the minimum wage, the size of this increase – with less than six months’ notice – will cause significant concern, especially with so many smaller firms already struggling,” said Gratton, adding that the best way to sustainably increase wages is to “help firms boost their skills and productivity”.

Richard Maitland, partner at MHA, said the rises were “not news” and largely in line with previous annual increases. But, he added, the timing could be problematic for employers.

“The [national minimum wage] increase, which comes in on April 2022, will kick in at exactly the same time as the rise in National Insurance to fund the UK government’s new Health and Social Care Levy,” said Maitland, adding employers would be faced with a “double whammy” of cost increases.

“For minimum wage employers in sectors such as hospitality, who are very much still feeling the financial pressures of Covid-19, a further increase to their employment costs will be far from welcome,” he said.

There were also concerns among some that the increases did not go far enough to support low-paid workers.

Nye Cominetti, senior economist at the Resolution Foundation welcomed the rise, especially given that low earners have been hardest hit by the crisis. But he pointed out that the headline living wage increase would be a “smaller real rise” than some recent years because of inflation, and that it would not compensate those on Universal Credit for the end of the coronavirus uplift.

“Importantly, a [national living wage] rise will not remotely compensate for the £20 a week cut to Universal Credit,” said Cominetti, adding that most national living wage workers receiving Universal Credit will lose over 60 per cent of any rise in wages because the benefit tapers as earnings increase.

The Resolution Foundation has calculated that an individual working 35 hours a week on the national living wage and on Universal Credit would see their pre-tax pay increase by £1,074 a year, but would only see their take-home pay increase by £265 after taking into account the benefit taper, income tax and the higher rate of National Insurance contributions.

Separately, the BBC has reported that Sunak will also give millions of public sector workers a pay rise next year by lifting the pay freeze.

During his budget announcement tomorrow, the chancellor is expected to say nurses, teachers and members of the armed forces will be able to have an increase in wages, following a “temporary pause” during the pandemic.