Despite ambitious language, the Government is continuing its cautious approach to uprating the minimum wage

The Government has chosen to raise the adult minimum wage (the National Living Wage) in line with average earnings growth in 2026, in a repeat of last year’s cautious approach, although it has signalled it may adopt a more ambitious approach later in the parliament, the Resolution Foundation said today (Tuesday).

Today, the Government published the new remit for the Low Pay Commission (LPC), which will determine how minimum wage rates are set in April 2026. The new remit again states that the Government “is determined to deliver a genuine living wage”.

But despite this ambitious language, the Government has again opted for a steady-as-she-goes approach to the adult minimum wage rate for 2026, which is set to rise in line with typical earnings next year. This was also the approach taken to the 2025 uprating. Similarly, despite a bold pledge to get rid of minimum wage rates for younger workers (under the age of 21), which the Government says are “discriminatory”, worrying economic data means reality may be less spectacular. The Government has asked the Low Pay Commission to consult on changes in the rate for 18-to-20 year olds, which suggests the 18-to-20 year old rate is set for a smaller increase in 2026 than the large 16.3 per cent increase this year.

Given current forecasts for wage growth and the Government’s policy announced today, the Low Pay Commission have said they currently expect the National Living Wage (the NLW – which applies to workers aged 21 and above) to reach £12.71 in April 2016, an increase of 4.1 per cent. This would be a smaller cash increase than all but one year (2021) in the post-2015 National Living Wage era. The Low Pay Commission will produce its final recommendation in October, which will be affected by new earnings data  that becomes available in the interim. The final rate will most likely be announced by the Government around the time of the autumn Budget.

The Foundation notes that the Government’s approach of increasing the adult minimum wage in line with average earnings means a slower uprating than those implemented for most of the past decade, during which the minimum wage rose faster than average earnings. Between 2015 and 2024 the adult rate minimum wage rose more than three-times faster than average wages in real terms (32 per cent compared to 9 per cent). By contrast, the policy since April 2024 (under the previous Government) to April 2026 will be to raise the adult minimum wage at the same pace as typical wages.

The Foundation notes that there are two good reasons for a cautious approach to the minimum wage this year. One is the worrying state of the labour market: tax data suggest employee jobs fell by 142,000 between October and May. Another is the fact that labour costs have been pushed up by other Government policies, most notably the increase in employer National Insurance Contributions in April, which particularly affected low earners. Had this tax policy not changed, there may now have been further space to raise minimum wage rates.

Nye Cominetti, Principal Economist at the Resolution Foundation, said:

“Today, the Government has announced that the adult minimum wage will again be pegged to increases in typical wages, for the third year in a row. Based on current earnings data, the Low Pay Commission expects that means a new National Living Wage rate of £12.71 in April 2026, up 4.1 per cent on the current rate.

“At the same time, younger workers will likely see more significant increases as rates for 18-20-year olds and 16-17 year olds will continue to converge with the main rate, bringing us closer to the Government’s aim of creating a single rate for all adults in the UK.

“Despite the Government’s ambitious language around “delivering a genuine living wage”, the new remit for the Low Pay Commission represents a steady-as-she-goes approach to the adult rate, after faster increases in the years preceding 2024. This caution is warranted given worrying labour market data, which is thanks in part to the Government’s increase in employer National Insurance Contributions in April.”