Millions of UK workers to get pay rise as Reeves plans increased minimum wage | Budget 2025

Millions of low-paid workers in the UK will receive a 4.1 per cent pay rise next year, as Rachel Reeves confirmed minimum wage rates will rise as part of the government’s aim to improve living standards.

The national living wage will rise from £12.21 to £12.71 an hour for over-21s from April, and the government has said this will increase annual earnings for around 2.4 million workers by £900.

The minimum wage for 18 to 20-year-olds will rise by 8.5% to £10.85 per hour, narrowing the gap with older workers as part of the government’s pledge to “raise the floor” on wages for all workers.

The Treasury was concerned about the rise in youth rates, with some ministers and officials fearing entry-level jobs could become “priced out”.

But the chancellor said the government fully accepted the Low Pay Commission’s recommendations so that low-earners are “appropriately rewarded” for their work. The minimum wage for 16-17 year olds and apprentices will rise by 6 per cent to £8 per hour.

“I know the cost of living is still the number one issue for working people, and the economy is not working well enough for the lowest earners,” Reeves said.

“Too many people are still struggling to make ends meet and this needs to change. That’s why I’m announcing that we will increase the national living wage, as well as the national minimum wage, so that low-income earners are appropriately rewarded for their hard work.”

He added: “These changes will benefit many young people in our country getting their first job.”

Labor had promised before the general election to eliminate “discriminatory” low minimum wage rates for young workers so all adults could have the same statutory wage floor.

But there are concerns within the Treasury and abroad that tackling unemployment among young adults will require the Chancellor to abandon the process of equalizing the minimum wage.

Last month, the Resolution Foundation called on Labor to change course on reducing the youth rate, alarmed by a sharp rise in the number of young people aged 16 to 24 who are not in education, employment or training (Neet).

It was stated that the number of young people classified as Neet increased by 195,000 in the last two years, reaching 940,000, and the number is expected to reach 1 million for the first time since 2012.

Youth unemployment is now 14.5%, up from 13.7% the previous year, due in part to the ongoing impact of Covid-19 and the cost of a life crisis, but some within the government worry that higher minimum wage efforts may also hinder young people trying to find work.

Businesses also said they were struggling to hire workers due to the combined impact of last year’s national insurance increase and the minimum wage, along with key elements of Labour’s employment rights package.

Critics say the minimum wage, which stands at £8.72 per hour in 2020, has already risen by 40% in the past five years and is now one of the highest in the world. They also warn that although the average wage has increased, it remains at the same level.

The government argues the increases will benefit a total of 2.7 million young and older workers and strikes the right balance between workers’ needs, affordability for businesses and employment opportunities.

TUC general secretary Paul Nowak said: “The government is delivering on its promise to pay for work. In an environment where living costs are stubbornly high, an above-inflation pay rise will make a real difference to the lowest paid.

“Putting more money into people’s pockets is good for workers and the economy because it goes straight back into the high street and local businesses.

“And sticking with plans to reduce youth rates is absolutely the right call. Young workers have bills like everyone else and deserve a fair day’s pay for a fair day’s work. It’s true they’re seeing a bigger increase as youth rates are phased out.”