The UK’s minimum wage will rise to £12.21 an hour for over-21s in April 2025, marking a 6.7 per cent increase from the current £11.44, the Chancellor has announced ahead of the Budget.

This move, affecting over three million workers, aligns with Labour’s pledge for a “genuine living wage,” according to Chancellor Rachel Reeves.

The upcoming changes include a significant pay boost for younger workers and apprentices. For 18 to 20-year-olds, the minimum wage will jump from £8.60 to £10 an hour, while apprentices will see a record increase from £6.40 to £7.55. The Treasury states these adjustments lay the groundwork for unifying the minimum wage rate across all age groups in the coming years.

This shift follows the government’s instruction to the Low Pay Commission to incorporate the cost of living into its recommendations, as inflation and living costs remain high. Helen Dickinson, chief executive of the British Retail Consortium (BRC), welcomed the wage hike for employees, noting that it provides some relief to households amidst economic pressures. However, she urged the Chancellor to reform business rates in Wednesday’s Budget to alleviate burdens on high-street retailers.

While this wage increase is expected to benefit many workers, business owners are concerned about the potential impact of higher payroll costs. Christine Dobson Moore, owner of the Sanwitches Cafe in Sabden, Lancashire, highlighted the struggle many small businesses face with rising costs. “Politicians don’t live in the real world. They don’t understand the impact this will have on us,” she said.

Hospitality leaders also raised concerns, with UK Hospitality chief executive Kate Nicholls warning that “balancing the books from the pockets of High Street businesses” could hinder the industry’s viability, leading to possible job cuts, higher prices, and reduced investment. Greene King CEO Nick Mackenzie added that while the minimum wage rise was “higher than expected,” it’s the “cumulative effect” of various cost increases that poses the biggest threat to business stability.

Amid the wage discussions, speculation mounts around tax hikes Labour might announce to address a projected £22 billion funding gap. One likely move is an increase in National Insurance contributions, which employers currently pay at 13.8 per cent on earnings above £175 a week. Reeves is expected to lower the threshold for employer contributions, a combined measure anticipated to raise around £20 billion in funding. Analysts suggest that this added burden could further strain businesses, potentially resulting in reduced hiring, limited pay increases, and increased prices passed on to consumers.

Paul Nowak, general secretary of the Trades Union Congress, defended the minimum wage rise. “Every time the minimum wage increases, there are claims it will harm employment, and each time they are proven wrong,” he stated. Meanwhile, Claire Reindorp, CEO of the Young Women’s Trust, said the increase is particularly impactful for women, who are disproportionately represented in low-paid roles.

Melanie Pizzey, chief executive of the Global Payroll Association, noted that businesses may consider curbing pay rises for those earning above the minimum wage to manage rising expenses.

With the UK’s economic growth a top government priority, some experts worry that the cost pressures of wage hikes, coupled with tax increases, could hinder progress on this front. Nonetheless, the National Living Wage rise to £12.21 stands as a major milestone for the government, reinforcing its commitment to addressing the cost of living crisis and supporting the UK’s low-income workforce.