Britain's minimum wage will increase by 9.8 per cent to £11.44 an hour from April 2024, making it one of the highest as a share of average earnings of any advanced economy.
Chancellor Jeremy Hunt announced the increase on the eve of delivering a mid-year budget update which is expected to reduce taxation and put greater requirements on those out of work to seek employment or face losing benefits.
Last month Hunt told the annual conference of his Conservative Party that he intended to increase the minimum wage to at least £11 an hour, part of a goal to raise it to two thirds of average earnings.
"The National Living Wage has helped halve the number of people on low pay since 2010," Hunt said on Tuesday.
The big rise in the minimum wage comes as the Bank of England warns that the current pace of wage growth in the broader economy - which reached around eight per cent earlier this year - would make it hard to return inflation to its two per cent target.
In 2022, the OECD estimated Britain's minimum wage was equivalent to 58 per cent of full-time earnings, the third highest in western Europe after Portugal and France.
Around 2.7 million workers will benefit directly from the increases, the government said.
As part of the changes, workers aged 21 and 22 will be entitled to the full minimum wage for the first time, while lower rates paid to workers aged 18 to 20 and apprentices will also increase.
The Low Pay Commission, an expert panel which advises the government on minimum wage increases, said the arguments around the upcoming increase were "finely balanced".
"As last year, businesses felt pressured to pass National Living Wage increases onto consumers. More are worried this year that they are reaching a limit in what they can pass through without undermining demand," it said.
Social care and childcare employers would find it especially hard, it added.
Responding, the Association of Convenience Stores (ACS) has warned about the affordability of the increase and called for a pause on future increases if they’re shown to be damaging investment and employment prospects.
“A National Living Wage of £11.44 from April reaches the government’s long-standing target of reaching two-thirds of median earnings by 2024. This will be tough for many local shops to afford, having struggled with a cost of doing business crisis for nearly two years now, and with wage bills the biggest expense for most retailers,” James Lowman, ACS chief executive, said.
The Federation of Independent Retailers (the Fed) said the latest increase in the national minimum wage will be damaging to many small stores.
The Fed’s national president Muntazir Dipoti warned that the extra cost could be the tipping point for stores that are already struggling to stay in business in the current economic climate.
He said: “As responsible employers, we want to pay our staff a fair wage for a fair day’s work. However, it should be borne in mind that many small shops are also struggling to cope with soaring costs. “Unfortunately, there are hours in the day when some retailers do not generate an income of £11.44."
Findings from ACS’ National Living Wage Survey 2023 have revealed that retailers have already responded to recent increases in the NLW by taking lower profits (69 per cent of stores), reducing staff hours (56 per cent), reducing the amount they invest in their business (50 per cent) and automating certain processes (50 per cent).
