David Cameron has announced inflation-busting increases to national minimum wage rates, to come into effect from October 2016.
The standard rate of the national minimum wage for 21- to 24-year-olds will increase by 3.7% to £6.95 per hour, after the Government accepted recommendations for the new rates from the Low Pay Commission (LPC).
Workers aged between 18 and 20 will see their pay rates rise by 4.7% to £5.55 per hour. The minimum wage for 16- to 17-year-olds increases to £4.00 per hour, a hike of 3.4%, while the apprentice rate increases 3% to £3.40.
The Government, which announced the new rates alongside its new Help to Save initiative, said the increase will mean that, for the first time, the national minimum wage for 21- to 24-year-olds is restored to its highest level in real terms, above its previous peak before the recession.
The national living wage, the minimum wage rate for workers aged 25 and over, is also introduced on 1 April 2016.
LPC chair David Norgrove explained that the unemployment rate for 21- to 24-year-olds is twice as high as 25- to 30-year-olds but that former age group had seen falling unemployment rates and pay growth twice as fast as for workers aged 25 and above.
“Our recommended increase balanced these considerations, delivering a higher increase than last year in both cash and percentage terms. It means both the real and relative value of the minimum wage for 21- to 24-year-olds is likely to reach its highest ever level,” he said.
Lee Hopley, chief economist at EEF, said: “The challenge for employers is keeping pace on pay, whilst juggling a number of other employment-related costs coming their way. It is becoming increasingly difficult to disentangle rises to the national minimum wage rates with other business costs such as the new apprenticeship levy, [pensions] auto-enrolment and the proposed immigration skills charge.
“Business is already facing a combination of planned increases in costs which are coming at a difficult time for the economy. The Chancellor must signal on Wednesday that there are no further policies in the pipeline, which will add even further cost.”
The minimum wage rates will last for six months only after Government concluded that the rates for all workers should be aligned in April next year. The LPC will report in the Autumn on the level of all the rates to apply in April 2017 including the national living wage and new rates for the four minimum wage rates.
Sheila Attwood, pay and benefits editor at XpertHR, said: “The Government’s intention to uprate the national living wage and the national minimum wage rates at the same time from next year clearly makes a lot of sense.”
TUC general secretary Frances O’Grady said: “We are pleased the Government is increasing minimum wage rates across the board. Low-paid workers must not be left behind by the recovery.
“However, we do not see the logic or fairness in treating 21- to 24-year-olds differently from other adults. They should be on the same hourly pay as over 25s.
“And, if the Government wants to attract more young people into apprenticeships, then it needs to up the £3.40 apprenticeship rate. Future minimum wage increases must do more to narrow the pay gap between old and young.”