Firms could be set to face higher payroll costs as the minimum wage is reportedly set to increase by more than six per cent at Wednesday’s Budget.
Chancellor Rachel Reeves is expected to announce an above inflation raise that is higher than was predicted last month, according to the Times newspaper.
It will result in more than one million workers on low incomes seeing their pay packet rise to more than £12.12 a hour, the paper reported.
Workers aged 18-20 years old are set for an even bigger hike as the government wants them to eventually be paid the same rate as those aged over 21.
But businesses have warned the minimum wage rise is set to be announced alongside an increase in their employer national insurance contributions (NICs), an additional levy firms pay on wages.
Some 1.6m people are currently paid the ‘national living wage” (NLW) of £11.44 an hour.
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Last month, the government’s Low Pay Commission said in a policy paper that the (NLW) increase in 2025 should “not fall below two-thirds of median hourly earnings” and should “take account of the cost of living and expected inflation up to March 2026”.
The body expected to recommend a 5.8 per cent increase, but said its forecast had already risen from March 2024 due to earnings growth being “stronger than forecast”.
A government source, according to the Times, suggested the final figure was now above six per cent, which would push the hourly wage nearer to £12.20.
Tina McKenzie, policy chairman at the Federation of Small Businesses (FSB), stressed to the Times that it is “businesses that pay people’s wages” and called for government tax changes to be “factored in” when deciding the NLW rate.
Any rise, she said, “must be accompanied with powerful government measures to help small businesses create and sustain jobs” as firms face “difficult choices” amid rising staff costs.
While Paul Nowak, general secretary of the Trades Union Congress (TUC), argued low-paid workers would “spend more of their cash in their local economies” and that “any increase in their spending power will benefit local firms too”.