National Living Wage rises to £10.42 from April 2023

The Chancellor’s Autumn Statement last Thursday included confirmation of the 2023 increase to the National Living Wage (NLW – the statutory minimum wage for all employees aged 23 and over), which will rise to £10.42 with effect from 1 April. This represents an uplift of 9.7% and is some 10pph above the Low Pay Commission (LPC)’s central forecast of £10.32 for next year, published back in April.

The same level of increase has been applied to the apprentice rate (informally aligned to the 16- to 17-year-old rate since April 2022) and all National Minimum Wage age bands with the exception of that for 21- and 22-year-olds, who will see rates rise by 10.9% to £10.18. The higher increase for this age group is in part intended to moderate the impact of the expansion of the adult NLW rate to all workers aged 21 and over from next year.

Since 2020, the target for the NLW has been for it to reach two-thirds of median earnings by April 2024. Over the past year, both nominal growth in, and forecasts for future average earnings growth have strengthened, leading the LPC to increase its projection for the 2024 target from £10.70 to £11.08 (within a range of £10.82 to £11.35). The LPC recommended the latest rise in the NLW on the basis that a lower increase (of 6.3%) will then be required in April 2024 to reach the £11.08 target, by which point average earnings growth is likely to have slowed and the (currently strong) labour market is expected to have softened. The incorporation of 21- and 22-year-olds into the NLW’s remit will also have the effect of reducing median hourly pay for the eligible population.

The latest announcement will see many employers in traditionally low-paying sectors having to implement increases in April 2023 to ensure their pay rates comply with the new statutory floor. Retailers, particularly within the food retail subsector, have less of a gap to bridge, while casual dining restaurant employers will be most affected as they pay the lowest rates overall (boosted by tips), followed by those in the fast food sector. According to our Pay Benchmarker database, median pay rates in these sectors are £9.50 – level with the current NLW – and £9.64 respectively.  Meanwhile those organisations that have signed up to the voluntary Living Wage are already working on ensuring that minimum pay rates are at least £10.90 (£11.95 in London) by May 2023 or ideally sooner – some 48p or 4.6% above the new NLW that is set to come into force in April.