Rise in National Living Wage from April 2021

The National Living Wage (NLW) and National Minimum Wage (NMW) rates will rise from April 2021, in accordance with the recommendations of the Low Pay Commission (LPC).

The NLW will increase by 2.2% from £8.72 to £8.91 per hour, and will be extended to 23 and 24 year olds for the first time.

From April 2021, the NLW will be the statutory minimum wage for workers aged 23 and over. It currently applies to workers aged 25 and over. The reduction in the NLW age threshold follows a review of the structure of the National Minimum Wage youth rates and recommendations made by the LPC in autumn 2019. The threshold will further reduce to 21 by 2024.

For workers aged under 23, the Commissioners recommended smaller increases in recognition of the risks to youth employment which the current economic situation poses.

The LPC’s recommendations, accepted by the government, comprised:

Given uncertainties over the long-term economic outlook, the LPC has not recommended any change to the Government’s target of the NLW reaching two-thirds of median earnings by 2024.

The LPC’s report sets out an indicative future path for the NLW; but the effects of furloughing on pay data limit its precision this year.

The LPC's recommendations were submitted to the Government before the announcement of further lockdown restrictions in England and the extension of the Coronavirus Job Retention Scheme (furlough).

Personal tax thresholds

The Spending Review on 25 November 2020 (paragraph 2.8) stated that the government will increase the 2021-22 Income Tax Personal Allowance and Higher Rate Threshold in line with the September CPI figure.

The government will also use the September CPI figure as the basis for setting all National Insurance limits and thresholds, and the rates of Class 2 & 3 National Insurance contributions, for 2021-22.

Difference in rates

The National Living Wage 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 National Living Wage 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, the National Living Wage to workers aged 23 and over.
• The LPC has no role in the UK Living Wage or the London Living Wage

Enforcement

Employers who do not pay at least the appropriate minimum wage face penalties as well as being named and shamed by HMRC.

Universal credit

On a related matter, the Chancellor's Spending Review on 25 November was silent on whether this year's temporary £20-per week increase in universal credit will continue beyond next April. It looks likely that an announcement will not be made on this until the March 2021 Budget.

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