Chancellor John Healey is expected to announce the changes in Wednesday’s Budget, with the main adult minimum wage rising by 3.9%. The decision would mark a change in Labour’s approach to narrowing the pay gap between younger and older workers, following warnings from employers about the cost of hiring.
Adult Minimum Wage Expected to Reach £13.20 an Hour
The National Living Wage, which applies to workers aged 21 and over, is expected to increase from £12.71 to approximately £13.20 an hour. According to the Financial Times, people briefed on the decision said the 3.9% increase would take effect next April, affecting a labour market in which around 1.7 million jobs are paid within 5p of the existing rate.
The proposed increase broadly follows recent growth in average earnings across the British economy. It also falls near the Low Pay Commission’s earlier estimates for maintaining the minimum wage relative to typical earnings.
In April, the commission indicated that the National Living Wage would probably need to reach £13.18 in 2027, representing an increase of approximately 3.7%. Its recommendations take account of wage growth, living costs and conditions in the wider labour market. The Telegraph reported that inflation was running at 3.5%, with an average rate of around 3% expected in 2027. On those figures, the proposed wage increase would exceed inflation, although employers have warned about the additional pressure on operating costs.
Business organisations have raised concerns about rising payroll taxes, energy bills and wages. The hospitality sector is particularly exposed, with approximately 330,000 jobs paid at or around the minimum wage. The Treasury declined to comment on the reported plans ahead of the Budget announcement.
Youth Wage Increases Slow Amid Unemployment Concerns
Workers aged 18 to 20 are also expected to receive a 3.9% increase, taking their hourly minimum wage from £10.85 to around £11.27. The decision would interrupt Labour’s previous approach of increasing younger workers’ pay faster than the adult rate. Its manifesto committed to removing age-based differences in minimum wage rates, although employers have argued that rapid increases could discourage recruitment.
According to LBC, approximately 940,000 young people in the UK are classified as not in education, employment or training, an increase of 195,000 over two years. Youth unemployment has also reached 15.6%, with 54,000 more young people unemployed than a year earlier. Employers have repeatedly warned that higher entry-level wages, alongside increased employment costs, could make businesses less willing to recruit inexperienced workers.
The debate remains contested. The Mirror reported that the Trades Union Congress rejected warnings about equalising youth rates, citing analysis suggesting that 85% of young workers already earn above the minimum.
The Low Pay Commission has also found that previous changes bringing older age groups into the adult minimum wage system did not affect employment rates.
In March, the government gave the commission greater flexibility to consider labour market conditions when advising on youth wage rates. Wednesday’s expected announcement would reflect that approach, while leaving the existing difference between adult and younger workers’ hourly pay in place.
