In April the previous Government published a new remit for the Low Pay Commission (LPC), the independent body that advises on the National Living Wage (NLW) and National Minimum Wage (NMW). Unusually, and likely in anticipation of a change of administration, the latest remit covers a single year, and aims to maintain the NLW at a level equivalent to two-thirds of median earnings in 2025. However, the new Labour Government has outlined plans that could introduce a closer link between the NLW and the cost of living in the future.
The existing remit builds on the LPC’s target for the period from 2020 to 2024, over which the NLW rose from 60% to 66% of median earnings and was expanded to cover workers aged 21 and 22. The LPC’s current projected rate for the NLW in 2025 looks to be within the range of £11.61 and £12.18, with a central estimate of £11.89. This represents an increase of 3.9% (45p) on the current rate of £11.44 – a significantly smaller increase than those seen over the last two years (92p/9.7% in 2023 and £1.02/9.8% in 2024). This is because previous rises in the NLW involved relatively large step changes in its value relative to median earnings, in order to meet government targets.
In addition, the Government asked the LPC to monitor the levels of each of the NMW rates (under-18 and 18-20 age groups and apprentice rates) and recommend the highest possible rate for each group. The LPC was also asked to continue to gather evidence on pay for low-paid workers with protected characteristics such as disabled workers, women, and those from ethnic minorities and finally, to gather evidence on how the NMW has contributed to the previous Government’s 'Levelling Up' mission, which was designed to improve pay and productivity across the country.
With the change of administration following last week’s general election, more significant reform of the NLW could be on the horizon. As already mentioned, in Labour’s election manifesto the party said it aimed to ensure that the minimum wage is a ‘genuine living wage’. As such, it may change the Low Pay Commission’s remit so that its recommendations on the level of the statutory minimum account for changes in the cost of living. It also plans to remove age bands from the minimum wage.
Tim Butcher, Chief Economist and Deputy Secretary at the Low Pay Commission, is one of the expert speakers at our virtual conference on ‘Pay Planning for 2025’ on Thursday 12 September. For more details on the agenda and to book your place, click the button below.
