The National Minimum Wage (Amendment) Regulations 2025: impact assessment - RPC opinion (green-rated)
Regulatory Policy Committee opinion (green-rated) on the Department for Business and Trade’s (DBT’s) final stage impact assessment (IA) in respect of The National Minimum Wage (Amendment) Regulations 2025, laid in draft before Parliament on 4 February.
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The national minimum wage (NMW) was introduced in April 1999. The national living wage (NLW) was introduced in April 2016.
The proposals set minimum hourly wage levels, protecting low-paid workers while providing incentives to work. The Low Pay Commission (LPC) reviews these rates, and makes recommendations to government, annually. They would increase the NLW (from April 2025 applying to those aged 21 years and older) and the NMW rates for development (18-20 years), youth (16-17 years) and apprentices. All proposed increases are in line with the LPC’s recommendations. The proposals meet the Government’s target for the NLW to not drop below two-thirds of median earnings and narrow the gap between the NMW rate for 18-20 year olds and the NLW, towards a long term goal of achieving a single adult rate.
The IA estimates the equivalent annual net direct cost to business (EANDCB) as £235.2 million (2024 prices, 2025 present value), which is lower than previous years, reflecting the greater focus on increasing rates for younger workers rather than the NLW. The figure consists primarily of the cost to private sector employers of having to pay more to employees currently earning less than the proposed relevant minimum wage, with a small component accounting for transitional costs to employers of familiarising themselves with the new rates. An additional, indirect, cost to business is the pay impact on employers maintaining pay differentials above the NLW and NMW, totalling £664 million. Taken with the cost of the pay increase for employees currently earning below the NLW and NMW (£1,291 million) and transitional costs to employers of familiarising themselves with the new rates (£6.4 million), this results in an overall business net present value of -£1,961 million (2024 prices, 2025 present value).
The assessment outlines a sufficient rationale, focussed on equity and employer market power, and includes a reasonable justification for the preferred way forward, based on a full analysis of the preferred option and assessment against the Government’s policy objectives. The IA considers a shortlist of two options, based on recommendations from the LPC. The SaMBA provided is sufficient. The assessment includes a good regulatory scorecard that could, however, be improved with a greater consideration of potential risks, such as the impact on innovation, vulnerable workers; and international competitiveness. There is a satisfactory monitoring and evaluation plan, which could benefit from discussing plans on evaluating the NLW and NMW as a whole.