More harm than good? Minimum wage hikes kick in from April
With April approaching plenty of conversations have focused on the end of the tax year, with people scrambling to utilise their ISA allowances, but the month also brings about a pay rise for millions of Brits – and increased costs for employers.
The national minimum wage will increase from 1 April, with Chancellor Rachel Reeves declaring in last year’s Autumn Budget that 2.7m workers will benefit from the increases.
The increases are on top of a 6.7 per cent rise for over 21s and 16.3 per cent rise for 18 to 20 year olds respectively in 2024, where there was also a spike in employers’ National Insurance (NI) contributions.
Reeves championed the hikes amid the ongoing cost of living, stating the “economy isn’t working well enough for those on the lowest incomes”.
Hikes across the board
Both the national minimum wage and national living wage will increase across all age bands.
Workers aged 21 and over will be entitled to a minimum hourly rate of £12.71, up from £12.21, a 4.1 per cent hike. The government confirmed the rise will increase annual gross earnings for a full-time worker on the rate by £900.
This means the lowest paid workers on a 40 hour week will see their pre-tax pay hit £26,436.8.
Those on a 37.5 hour week will receive £24,784.5, while those on 35 hours will earn £23,132.2 per year.
Younger workers will see larger percentage increases as part of an ongoing plan to ultimately phase out the rate for 18-20 year olds and align them with the adult rate.
This plan means the age bracket will receive an 8.5 per cent boost, increasing the rate from £10 per hour to £10.85 per hour.
Apprentices and 16 to 17 year olds will be subjected to a 6 per cent increase, rising from £7.55 to £8.
The increases aim to keep the top rate above 66 per cent of median hourly earnings, with people aged 16 to 21 most likely to benefit, as the demographic is most likely to be on low pay, with roughly 31.7 per cent earning minimum wage in 2025.
Hitting businesses
Other forms of payment will also be subjected to a hike from 1 April, with statutory sick pay (SSP) hitting £123.2 per week, up from £118.7.
Statutory maternity, paternity, adoption and parental bereavement leave will also rise from £187.1 per week to £194.3.
The lower earnings limit will jump £4 per week from £125 to £129, with forthcoming legislation expected to extend SSP entitlement to employees earning below the lower earnings limit.
Where this applies, affected employees will be entitled to the lower end of the SSP weekly rate or 80 per cent of their average earnings, but the existing earnings threshold will continue to apply for family-related statutory payments.
While many workers may welcome the incoming rises, business owners and employers have expressed their concern, as many have already found themselves crippled by rising business costs and previous NI hikes.
Increasing costs also runs the risk of a reduction in hiring, giving lower pay rises or ultimately raising prices for customers, with businesses calling for the Chancellor to decrease the industry’s tax burden.
The Treasury has so far granted 15 per cent business rates relief on 2026-27 bills for pubs, rates frozen for two years, but the rest of the sector is still subjected to the crunch.
The Resolution Foundation has also previously raised concerns regarding the increase for 18 to 20 year olds, arguing it was “unnecessarily big” and could ultimately make it harder for people in that age bracket to find a job, with employers likely to opt for older, more experienced hires.
Rise in youth unemployment
The think tank claimed it could cause “more harm than good” and push up the rate of those not in employment, education or training, or NEETs.
Estimates from the Office of National Statistics indicate that 957,000 16 to 24 year olds qualified as a NEET in the final quarter of 2025, roughly 12.8 per cent of the age group.
The weak jobs market has hit young people particularly hard, caused by cuts in hospitality and retail and a reduction in graduate schemes with many firms now opting to invest in AI instead of hiring for entry level roles.
Businesses must ensure that pay rates for all workers and apprentices meet or exceed the new statutory minimums from 1 April.
Employers who also provide accommodation will be subject to the rise in accommodation offset, which will rise from £10.6 to £11.1 per day.
What can businesses do?
Meanwhile, the shake up to NI placed a further burden on employers, as the threshold to begin paying it dropped to £5,000 from £9,100.
The drop coupled with NI employer contributions rate rising to 15 per cent has forced employers to cough up more for a wider range of employees.
While businesses must ensure the pay rate is in effect, there are ways to reduce costs, including reducing staff or operating hours.
Other industry figures have urged businesses to boost its automation capabilities where possible to mitigate the squeeze, or cut non-essential spending.
Some called for employers to reconsider their long-term business and investment plans in a bid to make it through another year of poor economic growth.