Minimum wage rise for young workers prompts concerns over youth employment and business costs

The latest announcement from Chancellor Rachel Reeves regarding the minimum wage has prompted both support and alarm within the business community. From next April, the minimum hourly wage for 18 to 20 year olds is set to increase by 8.5 per cent, rising from £10 to £10.85. This marks the first occasion the threshold for young workers will surpass ten pounds per hour, a move Reeves describes as essential for ensuring workers are “properly rewarded for their hard work” and aiming to reduce living costs across the UK.

While Reeves positions the policy as a necessary step towards equity and economic improvement, the decision has met with sharp criticism, particularly from leaders within the hospitality sector. Industry figures warn that making it more expensive to employ younger, inexperienced staff could dampen recruitment and stall job opportunities, especially for those seeking their first position. Emma McClarkin, chief executive of the British Beer and Pub Association, expressed concerns that the higher wage bill risks “crippling job opportunities” for young people at the onset of their careers.

Tim Richards, chief executive of Vue Cinemas, signalled support for fair pay but cautioned that significant increases in wage costs inevitably place further strain on businesses already contending with inflation and rising expenses. As labour forms a substantial proportion of costs in service-led industries, he warned of challenges in keeping prices affordable for consumers while meeting new pay requirements.

The changes are intended as a step towards aligning pay rates for 18 to 20 year olds with those of over 21s; the latter group will see their minimum wage rise by 4.1 per cent to £12.71 per hour. However, the Resolution Foundation has questioned the policy of converging youth and adult wage rates, suggesting this could worsen employment prospects if employers become reluctant to hire due to higher wage obligations. Presently, nearly a million young people in the UK are classified as NEET, neither in employment, education, nor training.

Kate Nicholls of UKHospitality underlined the strain on hospitality businesses, arguing that increased costs will almost certainly be passed on to consumers, potentially fuelling inflation. The sector anticipates an additional £1.4 billion in wage bills, on top of previously increased costs. Sir Tim Martin, chairman of Wetherspoon, added that wage increases for younger staff may limit the ability to reward more experienced workers and could result in sharper price rises in pubs compared to supermarkets, given the higher share of labour in their cost structures.

Supporters of the wage increase argue it will help low income workers contend with the cost of living crisis but consensus among industry leaders is far from clear. Many warn that without corresponding growth in business revenues, or government support, the move risks undermining youth employment and increasing financial pressures on sectors already enduring acute cost challenges.