Business backlash as Rachel Reeves confirms minimum wage and living wage rates rise in Budget
Business leaders have sent a warning to Rachel Reeves over an inflation-busting increase in the minimum wage that they fear will increase unemployment and hit economic growth.
The Chancellor announced that the hourly minimum wage for those aged 18 to 20 has increased by 8.5 per cent to £10.85, and the minimum wage for those aged 21 and over has increased by 4.1 per cent to £12.71 per hour. Meanwhile, 16 and 17-year-olds, as well as those on apprenticeships, will see a 6 per cent increase to £8 per hour.
The announcement, made on the eve of Ms Reeves’ Budget, will mean pay rises for millions of workers, with the Chancellor promising those on lower incomes will be “appropriately rewarded” for the work they do.
But it came just 24 hours after it was revealed that growth forecasts for the UK would be cut by the Office for Budget Responsibility until 2029, and business leaders warned that tax rises, minimum wage hikes and new employment rights legislation were making it impossible for them to deliver economic growth for the country.
There is still anger over the increase in employer national insurance contributions announced in Ms Reeves’ Budget last year, which hit the job market.
Reacting to the minimum wage increase, Institute of Management chief economist Anna Leach warned that the move would increase unemployment among young people.
He said: “These changes only benefit those who remain in employment, but the increased cost and risk of employment is already reducing job opportunities.
“The sharper rise in the youth rate is particularly worrying because it is likely to accelerate job loss among young people – at a time when almost a million people are already not in education, employment or training.”
Latest figures show the number of so-called NEETs (young people not in employment, education or training) has risen to almost 1 million.
Matthew Percival, Director of Jobs and Skills at the CBI, said that “struggling firms” were already “diverting investment away from innovation, training and job creation – the things we need to drive productivity growth that supports sustainable wage rises”.
He added: “We must ensure that these measures do not undermine both economic growth and vital labor market initiatives such as the Youth Guarantee.”
Announcing the policy, the chancellor said the cost of living was still the “number one issue for working people”. He claimed the rise would increase the pay packets of around 2.7 million workers, meaning a £900-a-year pay rise for those over 21.
He said: “The economy is not working well enough for those on the lowest incomes. Too many people are still struggling to get by and this needs to change.”
“These changes will benefit many young people in our country getting their first job.”
Unions welcomed this step. TUC general secretary Paul Nowak said the pay rise would “make a real difference for the lowest paid”, while Youth Employment UK said it was “a vital and necessary step in the government’s ongoing journey to make work make money for everyone”.
But Tina McKenzie, head of policy at the Federation of Small Businesses (FSB), warned that labor costs were one of businesses’ three biggest barriers to growth.
He said: “As national insurance contributions rise, employment costs climb and hiring becomes riskier, small employers are thinking twice about hiring people and young people and will miss out on those opportunities. Give businesses the capacity to hire and they will; it’s that simple.”
Kate Nicholls, chief executive of UKHospitality, said increases in minimum wage rates were “another cost that hospitality businesses need to offset at a time when they are already taxed”.
“These additional costs make it even more important to take action in the Budget to reduce the hospitality sector’s tax burden, especially if businesses are expected to maintain this level of annual wage growth.”
Announcing the increase, Ms Reeves insisted it supported businesses while protecting jobs and the economy. “That’s why we signed trade agreements with the US, the EU and India,” he said.
“That’s why we’re committed to economic stability. To help interest rates fall further. That’s why we’re capping corporation tax and reforming business rates to help the high street in particular.
“I will deliver on our mandate for change in this week’s Budget and I am committed to lowering the cost of living for everyone.”
The decision included full acceptance of the recommendations of the Low Pay Commission (LPC).
Baroness Philippa Stroud, chair of the LPC, said: “The recommendations published today are the product of a careful examination of the evidence, careful consideration and significant deliberation. “Our advice balances the Government’s ambitions with the need to protect the economy and labor market with fair and realistic rates.
“Although GDP growth was mixed last year and the labor market softened, our judgment is that recent NLW increases have not had a significant negative impact on employment.”
