Government announces new National Minimum Wage and National Living Wage rates

Recommendations of Low Pay Commission accepted subject to parliamentary approval.

At the end of December, the Department for Business, Energy and Industrial Strategy responded to Low Pay Commission recommendations for minimum rates of pay. BEIS has accepted all of the Low Pay Commission's recommendations. Subject to parliamentary approval, the following rates will come into force from 1 April 2020:

• The National Living Wage for workers aged 25 and over will increase from £8.21 to £8.72 per hour
• The National Minimum Wage (NMW) for those aged 21 to 24 will increase from £7.70 to £8.20 per hour
• The NMW for those aged 18 to 20 will increase from £6.15 to £6.45 per hour
• The NMW for those aged 16 and 17 will increase from £4.35 to £4.55 per hour
• The apprentice rate for those aged under 19 or in the first year of an apprenticeship will increase from £3.90 to £4.15 per hour
• The Accommodation Offset is set to increase from £7.55 per day to £8.20 – this is the maximum daily amount which an employer can take into account when calculating whether NMW has been paid, where accommodation is provided to a worker.

BEIS notes that the National Living Wage will be set at 60% of median earnings and that the NMW rate rises are above the rate of inflation.

In September last year, the chancellor, Sajid Javid, pledged that the NLW will be increased to two-thirds of median earnings within five years, provided economic conditions allow. He also pledged to extend the NLW rate to those aged 23 and over from 2021, and to those aged 21 and over within five years. On the basis of this pledge, the NLW is expected to rise to around £10.50 an hour by 2024.

Comment

This announcement is no surprise given the Government's existing pledges concerning low pay and the minimum wage. It might also be seen as an early attempt to reassure voters at the outset of the new parliament that lower paid workers will not be left behind. Employers, on the other hand, will be concerned about the impact of these increases on employment costs, including the pressure to raise the pay of workers currently paid above the minimum rate to preserve pay structures. Third sector employers may in particular have concerns that these increases could be a factor in job losses and contract loss to larger organisations.

Interestingly, a recent independent study of the impact of minimum wages internationally (commissioned by former chancellor Philip Hammond) concluded that minimum wages across the world have a "very muted effect" on employment, while significantly increasing the earnings of low paid workers. It recommended that a more ambitious minimum wage policy should be implemented along with clear guidelines for the Low Pay Commission to recommend and evaluate policy changes should evidence suggest in future that increases in the minimum wage have led to significant job loss.