National Living Wage will rise to over £11 an hour from April 2024

The National Living Wage (NLW) for workers aged 23 and over will rise to above £11 per hour for the first time with effect from 1 April 2024, the Chancellor has confirmed.

It is currently £10.42 per hour, having already increased by 9.7% in April 2023, the largest ever cash increase for the NLW.

Ahead of the Autumn Statement set for 22 November 2023, Chancellor Jeremy Hunt has said he agrees with the Low Pay Commission recommendations to effectively ensure that the NLW rises to two-thirds of average earnings.

The exact amount will be announced in the Autumn Statement.

Workers aged 23 and over are eligible for the NLW.

The current rates from April 2023 of NLW and National Minimum Wage (NMW) are as follows:

Difference in rates

The NLW is different to the UK Living Wage and the London Living Wage calculated by the Living Wage Foundation.

Differences include that:

• the UK Living Wage and the London Living Wage are voluntary pay benchmarks that employers can sign up to if they wish, not legally binding requirements.
• the hourly rate of the UK Living Wage and London Living Wage is based on an attempt to measure need, whereas the NLW is based on a target relationship between its level and average pay.
• the UK Living Wage and London Living Wage apply to workers aged 18 and over, whereas the NLW applies to workers aged 23 and over.
• The LPC has no role in the UK Living Wage or the London Living Wage

What are the arguments for and against increasing the NLW?

Arguments For an Increase:

• Poverty Reduction: Proponents argue that raising the NLW can help reduce poverty and improve the living standards of low-wage workers. It ensures that workers earn a wage that is sufficient to cover basic living costs.
• Income Inequality: Supporters contend that an increase in the NLW can help reduce income inequality by narrowing the wage gap between low-wage and higher-wage workers.
• Boost to Consumer Spending: An increase in the NLW can potentially stimulate consumer spending as low-wage workers have more disposable income, which can benefit local businesses and the overall economy.
• Reduced Reliance on Social Welfare: Advocates argue that when workers earn a higher wage, they are less likely to rely on social welfare programs, reducing the burden on government resources.
• Improved Productivity and Employee Morale: Some argue that higher wages can lead to improved employee morale and productivity, which can benefit businesses in the long run.

Arguments Against an Increase:

• Impact on Small Businesses: Opponents claim that increasing the NLW may place a financial burden on small businesses, leading to potential job cuts, reduced hours, or even business closures.
• Inflationary Pressure: Critics argue that raising the NLW can lead to higher costs for businesses, which may be passed on to consumers in the form of increased prices, potentially contributing to inflation.
• Reduced Hiring: Some businesses may be hesitant to hire new employees or expand their workforce due to the increased labour costs associated with a higher NLW.
• Automation and Job Loss: Concerns are raised about the potential for businesses to automate tasks or invest in technology to replace human workers, particularly in industries with a high proportion of low-wage jobs.
• Regional Disparities: Critics note that a one-size-fits-all approach to the NLW may not take into account regional differences in the cost of living, potentially causing challenges for businesses in lower-cost areas.
• Compliance Costs: Some argue that the administrative and compliance costs associated with implementing a higher NLW may burden businesses, especially small and medium-sized enterprises.

The debate over increasing the National Living Wage revolves around economic, social, and business considerations. Proponents emphasise the potential benefits for low-wage workers and the broader economy, while opponents express concerns about its impact on businesses, employment, and inflation.

The decision to raise the NLW often involves finding a balance between these arguments to promote economic growth while ensuring fair wages for workers.

NLW and tax thresholds (fiscal drag)

It is also worth noting that someone aged 23 or older and working 35 hours a week on the current £10.42 NLW will have an annual salary of at least £18,964. With personal tax allowances frozen at £12,570 until 2028, the effect of the new rates will increase the amount that is taxed on the worker (fiscal drag), so the full impact of the rise will be lost.

Enforcement

Employers who do not pay at least the appropriate minimum wage face penalties as well as being named and shamed by HMRC.  See also HMRC's NMW guidance for employers.

Further information

For more information, check out our Employer Solutions Hub.