LPC recommends moving towards a National Living Wage for over-18s

The Low Pay Commission (LPC) today publishes its advice to the Government on the future of the National Minimum Wage (NMW). The LPC’s report weighs up the progress of the minimum wage to date and sets out Commissioners’ views on the future of the rate.

The report comes as the National Living Wage (NLW) is set to reach the long-standing target of two-thirds of median hourly earnings, for workers aged 21 and over. Since 2016, the LPC has set the NLW with reference to a target. In this period, the NLW has risen far quicker than before the target was introduced and become one of the highest minimum wages in the world. In this context, the Government asked the LPC to help inform its next steps for NMW policy.

Commissioners’ recommendations include considering the case for reducing the NLW age of eligibility, reducing the gap between adult and youth rates and reforming the treatment of apprentices. The report discusses the advantages and disadvantages of different models of minimum wage policy.

Baroness Philippa Stroud, Chair of the Low Pay Commission, said:

Achieving the two-thirds target is a significant milestone.

The target has boosted the incomes of low-paid workers in especially turbulent times. And whilst it has posed real challenges for employers, in already difficult circumstances, but the evidence suggests the increases to date have been implemented steadily and carefully so as not to damage employment opportunities.

Our report reflects on the scale of this change and considers the way forward. There are various possible models for setting the minimum wage. In choosing the National Minimum Wage’s future direction, we stress the importance of clarity over the aims of the policy; and preserving the consensus-based social partnership model which ensures both worker and employer voices are heard.

There are real opportunities in the next phase of minimum wage policy, to make advances for workers young and old. Whatever decisions are made will always need to be backed by careful attention to the economic context and a keen sense of the risks faced by employers. The Low Pay Commission’s model remains the best one for delivering these changes.

For the next phase of the NMW, the LPC advocates the Government should adopt either a further target or return to a principle-based approach. Both approaches have pros and cons. If the Government wants further ambition and reductions in inequality then a target is likely best. If the aim is to instead protect the progress made so far and be more responsive to economic conditions then a principle-based remit may be best suited.

The report also shows that the gap between the youth rates and the NLW has widened in recent years. The LPC believes this should be addressed; the gap is large by historical and international standards, is regarded as excessive and unfair by many stakeholders, and median pay for young workers has grown faster than their minimum wages, reflecting healthy demand for young workers. There is scope to reduce the gap without negative employment consequences  and, if the evidence continues to support it, move towards an adult rate that begins at 18.

Read the LPC’s advice to the Government

Notes for editors

1. This report responds to a remit letter published by the Department for Business and Trade in April 2023. The report was submitted to the Government in December 2023.

2. Note incoming rates and recently published 2023 reportAll rates of the National Minimum Wage, including the National Living Wage, will increase in April 2024, in line with recommendations made by the LPC in October 2023. The new rates are set out below. The rationale for these recommendations and the evidence Commissioners relied on can be found in the LPC’s advice letter to Government and its annual report for 2023.

1. The April 2024 increase in the National Living Wage to £11.44 is expected to meet the Government’s target of raising the rate to two-thirds of median pay, thereby eliminating hourly low pay. The Government first set this target in 2020. At the same time, the age of eligibility for this rate will be reduced from 23 to 21, in line with a recommendation the LPC made in 2019.

2. The Government’s new remit to the LPC has been published today and is available to view here. The remit asks the LPC “to recommend the National Living Wage rate which should apply from April 2025 in order to maintain the bite at two-thirds of median earnings, and protect progress made to end low hourly pay for this group, without recommending any further revisions to the age threshold.” We currently project that a rate of £11.89 (with a range of £11.61-£12.18) would be sufficient in 2025 to stay at two-thirds of median hourly pay.

3. In the report published today, the LPC makes six recommendations for Government:

• Government should decide what policy outcome it wants to achieve with the minimum wage and ensure that it aligns with other policies.

• For the next steps of the minimum wage the Government should either adopt a further target or return to a principle-based or qualitative approach.

• Government should consider the case for lowering the gap between the youth rates and adult rates and for further reducing the NLW age of eligibility, and ask us to take this forward in a future remit.

• If Government agrees with recommendation 3 above on youth rates, it should consider the case for reforming the Apprentice Rate to a simple discount of the minimum wage that applies for that age group during their first year and ask us to take this forward in a future remit. For apprentices aged 16 and 17, the rate should remain aligned with the 16-17 Year Old Rate.

• Government should implement our 2018 recommendations on one-sided flexibility (a right to switch to a contract that reflects a worker’s regular working pattern; a right to reasonable notice of work schedules; and a right to compensation if a shift is cancelled or curtailed at short notice).

• Government should provide us with better quality and more timely data, so we can better evaluate the effects of the minimum wage.

1. The Low Pay Commission is an independent body made up of employers, trade unions and experts whose role is to advise the Government on the minimum wage. Note this report was agreed by ex-Commissioners – list.The report published today was agreed unanimously by Low Pay Commissioners in post in December 2023. These were: Bryan Sanderson (Chair), Kate Bell, Matthew Fell, Louise Fisher, Martin McTague, Professor Patricia Rice, Simon Sapper and Professor Jonathan Wadsworth. The terms of Bryan Sanderson, Kate Bell and Martin McTague concluded at the end of December 2023.

2. As of March 2024, the current Low Pay Commissioners are: Baroness Philippa Stroud (Chair), Nigel Cotgrove, Matthew Fell, Andrew Goodacre, Louise Fisher, Professor Patricia Rice, Simon Sapper and Professor Jonathan Wadsworth.