National Minimum wage will increase from April 2025

The National Living Wage (NLW) will rise from 1 April 2025 from £11.44 to £12.21 to reflect the cost of living under Labour's Plan to Make Work Pay. The rise is twice the current rate of inflation (3.0%) as employers face extra costs following the October 2024 Autumn Budget.

The 6.7% increase in the minimum wage is much higher than the rate of inflation due to the government changing the rules so that wages reflect the cost of living.

The National Minimum Wage (NMW) for 18 to 20-year-olds will also rise from £8.60 to £10.00 an hour – the largest increase in the rate on record. 

The government says this is the first step towards aligning the National Minimum Wage and National Living Wage to create a single adult wage rate.

During the Budget, the Chancellor also confirmed that Employers' National Insurance Contributions (NICs) will rise from 6 April 2025 from 13.8% to 15%, and the threshold at which it is payable will reduce from £9,100 to £5,000. On top of the changes to national living wage, this will increase the cost of an employee on national living wage (working 35 hours per week) to just under £2,270 per employee from April 2025.

The Employment Allowance, which is set against National Insurance costs, will also rise from 6 April 2025 from £5,000 to £10,500. This is to partly offset the rise in employers' NICs.

However, even with a doubling of the Employment Allowance, the combined increase in the minimum wage and NICs will impact small businesses, particularly in the retail and hospitality sectors where many employ a lot of part time staff earning less than £9,100 but more than £5,000. 

Add in increased business rates and many businesses will be facing a stark choice over staffing levels. 

Wider agenda

The change to the NMW is part of the government's wider agenda to reform workplace rights, as made clear in its pre-election manifesto. Some of its original proposals were watered down following concerns voiced by business groups.

On 24 May 2024, the Labour party renamed its New Deal for Working People to Make Work Pay in order to reassure businesses, and promised a full consultation before enacting legislation. 

The legislation is currently making its way through Parliament in the Employment Rights Bill.

The legislation will enact various policies, including removing some current trade union legislation, a reduction in government outsourcing, and an end to hire and re-fire (unless bankruptcy would otherwise result), as well as “day one rights” on unfair dismissal, parental leave and sick pay (all subject to an employer's probationary periods and other possible exemptions).

See our article: New employment rules to impact employers

NMW and tax thresholds (fiscal drag)

The impact of frozen tax allowances means that those on the minimum wage will not feel the full benefit.

Someone, say, aged 21 or older and working 35 hours a week on the current £11.44 NMW will have an annual salary of at least £20,820. But with personal tax allowances remaining frozen at £12,570, the effect of the new rates from April 2025 increases the amount that is taxed on the worker (fiscal drag).

Contact us  

We are here to support employers through any potential upcoming changes.  If you have any concerns or questions on the above, please contact our Employer Solutions team or your usual Bishop Fleming contact.