Millions of lowest-paid to get a £1,400 increase as Rachel Reeves hikes minimal wage to £12.21 an hour – however enterprise chiefs warn inflation-busting rise shall be one other blow for companies

Millions of the lowest-paid are in line for an inflation-busting pay boost after Rachel Reeves tonight revealed large increases to minimum wage rates.

On the eve of her first Budget, the Chancellor announced the National Living Wage – for those aged 21 and over – will rise from £11.44 to £12.21 an hour in April next year.

The Treasury said the 6.7 per cent increase would be worth £1,400 a year for an eligible full-time worker and will directly benefit more than three million workers.

Meanwhile, the National Minimum Wage – for 18 to 20-year-olds – will rise from £8.60 to £10 an hour from April in a 16.3 per cent increase.

This will be the largest increase on record, with the £1.40 hike meaning full-time younger workers will have their pay boosted by £2,500 next year.

Labour said it was the first step towards achieving their general election manifesto pledge of removing age bands in minimum wage rates.

The Government intend in future to align the National Living Wage and National Minimum Wage to create a single adult wage rate.

Despite the boost for lowest-paid workers, business chiefs warned the large rises in minimum wage rates slated for April represented a double-whammy for employers.

Firms are also set to be hit with an increase in their National Insurance contributions (NICs) at tomorrow’s Budget, as part of an expected £35billion package of tax rises.

Senior figures in the hospitality industry said their businesses would be ‘approaching tomorrow’s Budget with even more trepidation’ following the announcement of the minimum wage rates.

They demanded targeted measures to support high street firms.

Ms Reeves and Prime Minister Sir Keir Starmer have vowed to ‘fix the foundations’ with Labour’s first Budget in 14 years.

The mimimum wage changes in April follows Labour’s instruction to the Low Pay Commission, which recommends minimum wage rates, to include the cost of living in its calculations. 

The Chancellor said: ‘This Government promised a genuine living wage for working people. This pay boost for millions of workers is a significant step towards delivering on that promise.’

Ms Reeves is set to spark a Budget row by hiking employers’ NICs.

Labour pledged in their manifesto not to increase VAT, income tax or National Insurance as part of a promise not to raise the main levies for ‘working people’.

But speculation that the Chancellor is poised to hike NICs for firms has seen ministers struggle for weeks to explain who they define as a ‘working person’. 

The Tories have compared Labour to the ‘worst form of dodgy car hire firm’ for ‘conjuring up small print that never existed’ over their vow not to hike national insurance.

The PM today told his Cabinet ministers that the Budget would show ‘we are choosing to fix the NHS, rebuild Britain and protect the payslips of working people’.

Tina McKenzie, policy chairwoman at the Federation of Small Businesses (FSB), called for extra tax help for owners ahead of tomorrow’s Budget.

She said: ‘Raising employer NICs at the same time as employers adjust to a higher National Living Wage is why the Government should step up and significantly increase the Employment Allowance.

‘Reducing tax employers pay on wages is how you get sustainable rises staff actually feel in their pockets.’

The FSB has already warned the rise in employers’ NICs alone would increase the cost of hiring the average worker by £600.

Executive director Craig Beaumont said the rise would be ‘a tax on pay, hours and jobs which would lead to recruitment freezes – or worse’.

He added: ‘Small business owners are among the hardest working people imaginable.

‘They are strivers, working long hours to run their business and in many cases create jobs and opportunities.’

Kate Nicholls, chief executive of UKHospitality, said: ‘These wage rises are well above expectations, and make the Budget even more important.

‘It’s an added £1.9billion to the hospitality wage bill, on top of the cost of the Employment Rights Bill and, if rumours about the Budget are true, employer NICs and business rate rises.

‘Trying to balance the books from the pockets of high street businesses will simply leave hospitality as collateral damage – threatening jobs, future investment, price increases for consumers, and business viability.

‘Businesses will be approaching tomorrow’s Budget with even more trepidation following this news.

‘Our companies desperately want to be able to support higher wages for staff but what is being asked of them is simply unsustainable if taxes are going to shoot up at the same time.

‘In light of this, it’s paramount that the Budget includes targeted measures to support the high street and the cost burden it is facing.

‘That must start with addressing the broken business rates system and implementing a lower, permanent and universal level for hospitality.’

John Foster, chief policy and campaigns officer at the Confederation of British Industry, said: ‘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.

‘The National Living Wage has proven to be a valuable tool for protecting the incomes of the poorest in society and has supported equality in the lower half of the income distribution.

‘But with productivity stagnant, businesses will have to accommodate this increase against a challenging economic backdrop and growing pressure on their bottom line.

‘That pressure will make it increasingly difficult for firms to find the headroom to invest in the tech and innovation needed to boost productivity and deliver sustainable increases in wages.

‘Reviving business investment is the key to unlocking productivity gains and driving sustainable wage rises across the economy.

‘Achieving this shared goal requires business and government to work together to find a long-term solution to inactivity and the wider labour costs undermining competitiveness.’

Trade union leaders welcomed the rise in minimum wage rates and said firms were ‘wrong’ to warn it could drive up unemployment. 

TUC general secretary Paul Nowak said: ‘The Government is delivering on its promise to make work pay.

‘This increase will make a real difference to the lowest paid in this country at a time when rents, bills and mortgages are high.

‘Low-paid workers spend more of their earnings in their local economies – so boosting their pay packets will benefit local businesses too.

‘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.’

Baroness Philippa Stroud, chair of the Low Pay Commission, said: ‘The Government have been clear about their ambitions for the National Minimum Wage and its importance in supporting workers’ living standards.

‘At the same time, employers have had to deal with the adult rate rising over 20 per cent in two years, and the challenges that has created alongside other pressures to their cost base.

‘It is our job to balance these considerations, ensuring the National Living Wage provides a fair wage for the lowest-paid workers while taking account of economic factors.

‘These rates secure a real-terms pay increase for the lowest-paid workers. Young workers will see substantial increases in their pay floor, making up some of the ground lost against the adult rate over time.’