Millions of the lowest-paid are in line for an inflation-busting pay boost after Rachel Reeves revealed large increases to minimum wage rates.
As part 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.
Millions of the lowest-paid are in line for an inflation-busting pay boost after Rachel Reeves, pictured preparing her Budget, revealed large increases to 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.
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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: ‘I know that for working people up and down our country, family finances are stretched and pay checks don’t go as far as they used to.
‘For the first time, we will move towards a single adult rate, phased in over time, by initially increasing the National Minimum Wage for 18-20 year olds by 16.3 per cent as recommended by the Low Pay Commission, taking it to £10 an hour.’
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.’