UK Government Raises Minimum Wage by 10%

The UK government has announced a 10 per cent rise in the national living wage to take effect in the Spring of 2024. The pay floor for adult workers will be £11.44 per hour and is likely to directly benefit over 2.5 million workers, adding around £1,800 to the annual income of someone in a full-time job on minimum wage. But some businesses worry about their ability to absorb a further rise in costs. Will this announcement cost jobs in sectors such as retailing and hospitality?

1. Minimum Wage Increase:
   • The UK government has announced a significant 10% increase in the national minimum wage, referred to as the living wage.
2. Revised Wage Categories:
   • The minimum wage rates for apprentices and individuals under 18 will increase to £6.40.
   • The age group of 18 to 20 will see a new minimum wage of £8.60.
   • The minimum wage rates for individuals aged 21 and above will be merged, resulting in a new rate of £11.44 per hour, effective from April 2024.
3. Economic Effects and Considerations:
   • The government aims to improve work incentives and reduce working poverty by increasing the minimum wage, encouraging active labor supply and decreasing economic inactivity.
   • Businesses, particularly smaller ones with thin profit margins, may face challenges in absorbing higher labor costs, potentially leading to price increases, job cuts, or reduced working hours.
4. Impact on Consumption and Businesses:
   • The rise in the minimum wage is expected to directly benefit over two and a half million workers, potentially increasing average earnings by £1,800 or more per year.
   • While this boost to real income may stimulate consumption, businesses, especially those in sectors like construction, hospitality, and retail, may experience increased variable costs and potential consequences for pricing and employment.
5. Government Finances and Fiscal Implications:
   • The government anticipates a reduction in welfare payments to low-paid workers as their income rises, and an increase in tax revenue due to higher earnings and spending.
   • However, the government, as a major employer, may also face higher spending on wages for NHS workers and employees in other sectors, impacting overall government finances.