On 30 July, the incoming government issued a new remit for the Low Pay Commission (LPC), the independent body that advises the Government on the level of the National Living Wage (NLW) and National Minimum Wage (NMW). In keeping with Labour’s manifesto commitments, the new remit tasks the LPC with accounting for the cost of living in its recommendations, including expected annual trends in inflation up to March 2026 (ie just before the next NLW uprating will most likely take effect). It should also continue to narrow the gap between the ‘adult’ NLW and the 18-20 NMW rate with the aim of eventually achieving a single adult rate for all those aged 18 and over (no formal timescale has been specified for this). And as before, the other NMW rates (for under-18s and apprentices) should be set as high as possible without compromising employment prospects for these groups.
Between 2020 and 2024, the LPC successfully worked towards a target of gradually increasing the NLW to reach two-thirds of UK median earnings. The new remit retains the measure of two-thirds of median earnings as a floor for the NLW.
The LPC will draw on a range of sources to project wage growth and thereby determine its recommended level for the NLW from April 2025. These include median earnings data from the latest Annual Survey of Hours and Earnings (ASHE); a proxy of wage growth based on Average Weekly Earnings total pay data; and wage forecasts from HM Treasury, the Bank of England and the Office for Budget Responsibility for the period from June 2024 to October 2025. The NLW will then be set at two-thirds of the projection for October 2025.
As of this month, the LPC’s central estimate for the NLW from April 2025 is £12.10, an increase of 5.8%, with a lower-range projection of £11.82 and an upper range of £12.39. This is up on the LPC’s previous central estimate of £11.89 in March this year and it anticipates that these figures may rise further still over the rest of the year since earnings growth in 2024 has been stronger than forecast previously.
The LPC is set to make its recommendations to the Government by the end of October, following the release of the latest ASHE data. If accepted, it is then possible that the new rates effective from April 2025 will be announced as part of the Budget on 30 October.
