Rachel Reeves warned living wage hike will lead to job losses

Businesses have warned Rachel Reeves she risks causing further job losses if she goes ahead with plans to increase the minimum wage.

The Chancellor is believed to be considering increasing the national living wage by around 4 per cent from £12.21 to at least £12.70 and extending this to 18 to 21-year-olds.

The move will help assuage demands from Labor MPs who want the least well-off to receive support while the rich and big corporations are hit by wealth taxes.

But the leader of Britain’s hospitality industry has warned the move would be disastrous for the industry.

Last year’s budget had already been hit by a double whammy to the living wage, with an increase in employers’ national insurance contributions (NICs).

The so-called “jobs tax” raised around £20bn extra, but with many other companies implementing hiring freezes, an estimated 100,000 jobs were lost in the hospitality sector alone.

Kate Nicholls, chief executive of trade body UKHospitality, said: “Businesses are already struggling to cover all the costs of last year, two consecutive years of significant minimum wage increases and, crucially, NICs. [national insurance contributions]. We have seen 100,000 jobs lost as a direct result of this.

“If you want fair wages, you have to have sustainable jobs. If you’re eliminating those jobs, it doesn’t matter how high the minimum wage is. Businesses can’t absorb and absorb those costs. This has real-world consequences for jobs, livelihoods and the sustainability of the business. This is the cumulative impact.”

The government normally receives advice on the living wage from the Low Pay Commission.

The independent body suggested in May that the living wage should be increased from £12.21 to between £12.50 and £12.80. The “central estimate” was £12.65.

But since then, pay growth has been stronger than expected following a series of public sector pay awards, rising by 4.8 per cent from June to August 2025.

In her recent statements, Ms. Reeves emphasized that she wanted “those with the broadest shoulders” to bear the burden of tax increases.

While the Chancellor is expected to plug a Budget black hole of between £30bn and £40bn, he has also said he wants more than £10bn of headroom to provide flexibility to deal with shocks next year.

This means Labor will be seeking tax increases, believing that raising income tax is an option despite a commitment in its manifesto not to do so. Although the VAT increase seems to have been ignored.

Other options are a range of potential wealth taxes, including a raid on bank profits, a new gambling tax and changes to property taxes.