The government's acceptance of the Low Pay Commission's 2019 recommendations means that the NLW will reach the target of 60% of median earnings in April 2020.
Chancellor of the exchequer Sajid Javid has indicated he will set a further target of raising the NLW to two-thirds of median earnings by 2024. 2020 will be the final year in which the NLW will apply to workers aged 25 and over, with the age threshold coming down to 23 in 2021 and to 21 by 2024.
The full details of minimum wage rises are:
- National Living Wage: £8.21 to £8.72 (6.2%)
- 21-24 year-old rate: £7.70 to £8.20 (6.5%)
- 18-20 year-old rate: £6.15 to £6.45 (4.9%)
- 16-17 year-old rate: £4.35 to £4.55 (4.6%)
- Apprentice rate: £3.90 to £4.15 (6.4%)
Bryan Sanderson, chair of the Low Pay Commission, said: "The NLW has been an ambitious long-term intervention in the labour market. The rate has increased faster than inflation, faster than average earnings and faster than most international comparators. This has raised pay for millions without costing jobs, although employers have had to make a variety of other adjustments to deal with the increases.
"Our recommendations on the NLW are conditioned on sustained economic growth, and this bar was more narrowly reached than in previous years. Nevertheless, the economy has continued to grow and the labour market has performed well overall."
However, business groups have warned that the increase will put pressure on small firms and may have unintended consequences. Craig Beaumont, director of external affairs and advocacy at the Federation of Small Businesses (FSB), said: "There's always a danger of being self-defeating in this space. Wage increases aren't much good to workers if prices rise, jobs are lost and there's no impact on productivity because employers are forced to cut back on investing in tech, training and equipment."
Hannah Essex, co-executive director of the British Chambers of Commerce (BCC), said: "Businesses want to pay their staff a good wage. They recognise and support the drive to improve living standards. But many have struggled with increased costs in a time of great economic uncertainty. Raising wage floors by more than double the rate of inflation will pile further pressure on cash flow and eat into training and investment budgets. For this policy to be sustainable, government must offset these costs by reducing others - and impose a moratorium on any further upfront costs for business."
Written by Rachel Miller.