Yes, the government has increased both the National Minimum Wage and the National Living Wage for the 2021-22 tax year.
These are the statutory levels of pay that employers must give their employees. Any changes affect both businesses and individual taxpayers.
Changes to the National Minimum Wage
The National Minimum Wage is subdivided by age group. For the 2021-22 tax year, the hourly rates for each age group are:
- Apprentices: Now £4.30, previously £4.15 up 3.6% (Applies to anyone under 19 or in the first year of their apprenticeship)
- 16 – 17 year olds: Now £4.62, previously £4.55, up 1.5%
- 18 – 20 year olds: Now £6.56, from £6.45, up by 1.7%
- 21 – 22 year olds: Now £8.36, from £8.20, up by 2%
Changes to the National Living Wage
These changes are twofold. Firstly, an extension to its age boundary. The National Living Wage used to only apply to those over 25 years old. But from April 2021, this now applies to everyone from the age of 23 years old.
Secondly, the amount has been increased by 2.2%, from £8.72 per hour to £8.91.
Why have the government made these changes?
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.”
The government specifically tasked the Low Pay Commission, “to monitor the labour market and the impacts of the National Living Wage closely, advise on any emerging risks and – if the economic evidence warrants it – recommend that the government reviews its target or timeframe. This emergency brake will ensure that the lowest-paid workers continue to see pay rises without significant risks to their employment prospects.”
As ever, the government has targets in this area and this year’s increase contribute towards their longer term goal, as explained in the Spending Review 2020:
“This decision balances the ambitions of the government’s long-term target for the NLW to reach two thirds of median earnings by 2024 (subject to economic conditions) and helps ensure that the lowest-paid workers continue to see pay rises without significant risks to their employment prospects. In total, the annual earnings of a full-time worker on the NLW will have increased by £4,030 since its introduction in April 2016.”
The National Living Wage Commission themselves have said that, due to the financial cost of the pandemic, these aims are “subject to more uncertainty than usual and is likely to change.” They will produce an analysis in the summer, based on progress to that point.
Why is this important?
These seem like small percentage increases when you look at them as stark figures. And they are. But they’re not inconsequential – for the individual employees or their employers.
Chair of the Low Pay Commission, Bryan Sanderson, said:
“This has been an extraordinary year for all of us, but particularly for minimum wage workers, many of whom have worked throughout the pandemic in frontline roles or have worked in the sectors that have been hardest hit by lockdown measures.
“This week’s increase in the NLW is our first step towards the Government’s target of two-thirds of median earnings. It is a real-terms increase, meaning that an hour’s work can buy more than it could last year, at the start of the pandemic. The level of the new rate however also reflects the need to protect workers from job losses.
“Importantly, the NLW will now apply to workers aged 23 and over. This is an important change which is strongly endorsed by the Commission. Young people should be fairly rewarded for their work. We will seek to understand how young people’s pay and employment are affected by this in our consideration of a further reduction in the NLW age qualification to 21.”
These changes don’t exist in a vacuum. Individuals will need to monitor how this interacts with their frozen Personal Allowance threshold. And businesses will need to factor in increased staffing costs alongside other announcements in the Budget – like the planned Corporation Tax changes.
How will it affect you? Will it cost you more in staff wages? Do you get a bit more in your pay packet?