National Living Wage on track to rise to around £11.46 next year – the third biggest annual increase on record
Stronger than expected wage growth means the National Living Wage (NLW) could rise to around £11.46 an hour next April – well above the £11 suggested by the Chancellor earlier this month, according to a new Resolution Foundation briefing published today (Saturday).
The briefing – which uses the Low Pay Commission’s methodology to calculate what the National Living Wage could rise to next year – notes that as the NLW is currently pegged to median hourly pay, strong wage growth in recent months (average weekly earnings grew by 7.8 per cent in the three months to August) should increase its cash value next April.
The Foundation’s calculation, which uses the latest pay data including the Annual Survey of Hours and Earnings 2023 published earlier this week, implies the NLW will rise to £11.46 an hour next year, up from the current £10.42. This would be a 10 per cent increase in cash terms, the third largest percentage cash increase in the minimum wage during its 26-year history. Based on the Bank of England’s inflation expectations, it would mean a real-terms increase of 6.3 per cent, also the third largest in the minimum wage’s history. Around 1.7 million workers are set to be benefit directly from annual increases in the NLW.
However, the Foundation cautions that for some low earners, big rises in the minimum wage over the past decade (between 2013-14 and 2023-24 the adult minimum wage rose by 68 per cent in cash terms, and 27 per cent in real terms) have been offset by significant cuts to working-age benefits, which have reduced – or even eradicated – increases in their overall household disposable incomes.
The briefing note compares the real disposable income growth for different types of workers earning the minimum wage, and finds that shows that a single adult not receiving benefits has seen their income rise by 20 per cent in real terms over the past decade. This is significantly higher than a typical working-age household, which has seen far more modest real income growth of around 9 per cent over this period.
However, for a single parent with one child receiving benefits and earning the minimum wage, their pay gains have been offset by welfare cuts, notably the four-year cash freeze in working-age benefits from 2015-16. As a result, their real income has risen by just 4 per cent over the past decade. The situation is starker still for a NLW earner with three children, where the addition of the two-child limit on benefits introduced in April 2017 has meant that their income has fallen by 3 per cent in real terms over the past decade.
The Foundation says that these very different income trajectories are a strong prompt to policy makers to look at the bigger picture when it comes to supporting low earners, and low-income families. Increases in the NLW should be complemented by a stronger social security safety net so that families can fully enjoy the living standards benefits of higher hourly pay.
Nye Cominetti, Senior Economist at the Resolution Foundation, said:
“Earlier this month, the Chancellor announced that the National Living Wage would rise to at least £11 an hour next April. This looks to be a rare case of a politician under-promising, as the actual rate is more likely to be around £11.46. This would be a huge pay increase that will help millions of low earners as they navigate the cost-of-living crisis.
“However, a higher minimum wage alone cannot deliver higher living standards for everyone. Over the past decade, cuts to working-age benefits have offset the gains from the National Living Wage for many. Low-paid families with children in receipt of benefits will have experienced next to no, or even negative, income growth over this period, despite their hourly pay rising by 27 per cent in real terms.
“A strategy to boost the living standards of low earners must combine a higher minimum wage with better conditions at work and a stronger social security safety net as well.”