Starting April 2025, more than 3 million UK workers will see their wages rise as the national minimum wage jumps to £12.21 an hour, following the chancellor’s announcement of a 6.7% increase.

Rachel Reeves called the pay hike, which adds approximately £1,400 annually for eligible full-time workers, a “significant step” toward Labour’s pledge for a “genuine living wage for working people.”

This increase will also benefit younger workers. For those aged 18 to 20, the minimum hourly rate will jump from £8.60 to £10, marking a record-breaking 16% rise. As a result, full-time young workers could see an increase in wages, a move supported by ministers advocating pay parity with older workers.

However, the new rate still falls short of the £12.60 per hour benchmark set by the Living Wage Foundation, which is already voluntarily adopted by 15,000 UK employers. Additionally, apprentices will see a wage boost, with an 18-year-old apprentice in fields like construction experiencing an 18% hourly increase, moving from £6.40 to £7.55.

Paul Nowak, general secretary of the Trad Union Congress (TUC), argued that “this increase will make a real difference to the lowest paid in this country at a time when rents, bills, and mortgages are high.”

“The independent Low Pay Commission has looked at a range of economic evidence before making this recommendation. They know employers can absorb this increase. Every time the minimum wage goes up there are some voices who predict this will drive up unemployment. Every time they are wrong.”
Paul Nowak

Business Concerns Over Added Costs

While the announcement has been well-received by worker advocates, business groups warn that the minimum wage hike, alongside increases in national insurance contributions, could add pressure to companies’ financial health.

John Foster, chief policy officer at the Confederation of British Industry (CBI), remarked, “Politicians and businesses are united in wanting to ensure people have access to well-paid, fulfilling work. The only sustainable path to achieving that aim – not only for those earning the minimum wage but right across the economy – is higher growth and productivity.”

Foster highlighted that although the national living wage has protected the incomes of low-wage workers, stagnant productivity and increased business expenses could negatively impact investment.

He cautioned that “businesses will have to accommodate this increase against a challenging economic backdrop and growing pressure on their bottom line.” According to Foster, the wage increase might also stifle investment at a time when growth is crucial.

Nye Cominetti, economist at the Resolution Foundation, added that “this smaller rise in the minimum wage – the first time in almost a decade when it has risen no faster than typical wage growth – is sensible in the context of an expected rise in employer national insurance contributions at the same time.”

Cominetti noted that the government may need to adopt a “more ambitious” approach to wage policies in the future to achieve sustainable growth.

Inflation, Cost of Living, and Worker Protection

The 2025 wage increase follows a trend of nearly 10% annual increases over the past two years, primarily driven by high inflation. For the first time, the Low Pay Commission, responsible for setting the wage rate, was directed by ministers to factor in the cost of living, underlining the importance of supporting workers’ financial stability.

Philippa Stroud, chair of the Low Pay Commission, stated that “the government has been clear about their ambitions for the national minimum wage and its importance in supporting workers’ living standards.”

Stroud emphasized that the recent rise of over 20% in two years reflects efforts to provide “a fair wage for the lowest-paid workers while taking account of economic factors.” She described the new rate as a “real-terms pay increase for the lowest-paid workers,” highlighting the government’s commitment to supporting living standards.