Chancellor to raise minimum wage by 3.9 per cent at Budget

Chancellor John Healey is set to increase the national living wage by 3.9 per cent at the upcoming Budget, according to reports. The move will raise the pay floor for workers aged 21 and over to £13.20 an hour. This adjustment marks a significant shift in policy, as it effectively ends the government’s previous intention to equalise wages for under-21-year-olds with those of older adults.

The national minimum wage, which applies to younger workers, will also see a 3.9 per cent rise, moving from £10.85 to £11.27. While the policy has been popular with voters, business leaders have long cautioned that increased labour costs could pressure the jobs market and lead to higher consumer prices. The decision follows a period where former Chancellor Rachel Reeves’ wage increases were cited as a factor in rising unemployment, which has climbed to 4.7 per cent from approximately 4.4 per cent in the previous two years.

Labour’s manifesto had previously pledged to end what it described as discriminatory pay for young people, aiming to align their wages with the living wage by 2030. However, the government now appears to be maintaining a distinction between age groups. The Low Pay Commission, an independent body that advises on pay, has been subject to criticism, with former Prime Minister Rishi Sunak suggesting its abolition. Business chiefs have argued that rapid wage increases have deterred employers from hiring younger staff, contributing to youth unemployment surpassing 16 per cent for the first time in over a decade.

Alan Milburn, whose review on youth joblessness is due next month, linked rising unemployment to the additional costs imposed on employers by higher wages. Kate Nicholls, chair of UK Hospitality, welcomed the decision, stating that equalising wages would damage entry-level job opportunities. Healey and Andy Burnham have identified addressing the crisis among young people not in education, employment or training as a priority. The Treasury declined to comment on the speculation.