Research and analysis

Headlines from the National Minimum Wage Beyond 2024

Published 27 March 2024

From 1 April 2024 the National Living Wage (NLW) will increase to £11.44 per hour. At the same time, the age at which young workers become eligible for the NLW will change from 23 to 21.

We expect this increase to mean we reach the Government’s target of two-thirds of median hourly earnings, for workers aged 21 and over. This is a significant achievement of an ambitious target. The NLW has risen far quicker than before the target was introduced and become one of the highest minimum wages in the world.

In our remit for 2023, the Government asked us to help inform its next steps for National Minimum Wage (NMW) policy, which includes the NLW and the lower rates for younger workers and apprentices. We have looked at the NMW’s impacts, alternative models for minimum wages, and the role of lower rates for young people and apprentices. We have now published the letter and detailed report we submitted to Government in December 2023. This page summarises the recommendations we made.

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

The minimum wage, including the National Living Wage, has had a range of aims and delivered some important outcomes for workers. But it does not exist in a vacuum. If Government has clear policy aims in mind it should think how the NMW, along with other policies, can contribute. For example, ensuring the aims of minimum wages and in-work financial support are complementary. Similarly, if the Government is concerned about the possible negative effects of minimum wages it can consider other policy changes to mitigate these.

0.2             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

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. However, both have advantages and disadvantages. Other approaches such as geographical, sectoral, weekly and formula-based living wage approaches are unsuitable for national policy making. They can be overly complex, less responsive to economic conditions and leave less influence for the views of employers and workers.  We agree with our employer and worker stakeholders that living standards should be a key consideration for minimum wage decisions, but doing this need not be formulaic.

0.3             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

The rationale for lower rates for young people is to protect their employment chances. But the gap between the youth rates and the NLW has widened in recent years, and we believe 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.

0.4             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

Our view is that there are also grounds to remove the Apprentice Rate. But doing this at the same time as reducing the gap between the youth and adult rates for non-apprentices brings considerable risk. We believe that reducing the gap between youth and adult rates should be prioritised over changes to the treatment of apprentices. Lower minimum wages on the basis of training are more justified than on the basis of age. To that end we recommend that we keep an apprentice rate but that, for those aged 18 and over, it changes to a simple discount of the age rate during the apprentice’s first year. This, combined with the lowering of the NLW eligibility, will result in substantial increases in the wage floor for apprentices, but continue to recognise the additional costs relating to the substantial training they receive.

0.5             Government should implement our 2018 recommendations on one-sided flexibility. These are:

• a right to switch to a contract that reflects a worker’s regular working pattern

• a right to reasonable notice of work schedules

• a right to compensation if a shift is cancelled or curtailed at short notice

Many stakeholders have warned that the NLW’s impact is welcome, but that low-paid workers’ earnings can still vary substantially and unpredictably because of ‘one-sided flexibility’. The Low Pay Commission’s (LPC) view remains that our recommendations on one-sided flexibility would provide more security here without harming the labour market.

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

The three most important steps Government should take are:

• The Department for Business and Trade should work with HMRC to provide us more timely access to detailed employer payroll data. This would allow us to evaluate the latest minimum wage upratings more fully.

• HMRC should go ahead with their current plans to collect hours of work as part of their payroll data. This will allow us to better evaluate the minimum wage and help HMRC to enforce the minimum wage.

• The ONS should publish a report on how and why different official data sources on employment and wages have diverged since 2019. They should also explain how reliable each data source is for different purposes.