National minimum wage

On 1 April 2022, the NLW was set at £9.50 for the 2022-23 financial year, representing a 6.6% increase – or a 59-pence increase in absolute terms - on the NLW set for the previous financial year; the NMW for those aged 21-22 was set at £9.18 for the 2021-22 financial year, up 9.8% from £8.36 set for the year prior. Established in 1997 and confirmed in legislation by the National Minimum Wage Act 1998, the LPC is an independent statutory non-departmental public body in the United Kingdom that advises the government on the NMW and NLW rates. Bar its introductory year (i.e., 1999-00) and subsequent to the introduction of the NLW rate on 1 April 2016, the nominal NMW has been adjusted and inflated every October since October 2000. Over the five-year period through 2022-23, the NMW/NLW wage rate increased at a compound annual rate of 4.8% - in absolute terms, this was a £2.00 differential between the NMW rate recorded in this dataset in 2017-18 and the NLW rate for 2022-23.

Despite NMW and NLW rates, some workers are paid below the minimum rate of pay. While possibly due to non-compliance by employers, there are NMW and NLW exceptions for workers which match a certain criterion. For example, workers enrolled on particular apprenticeships, workers living in accommodation provided by their employers, and workers earning income on a solely commission basis are potentially subject to exclusion from the NMW and NLW rate benchmark. According to the Office for National Statistics (ONS), there were 2,043,000 employee jobs with employees aged 16 years and over (7.2% of employee jobs) who were paid below the NMW or MLW in April 2020. For context, this compared with 409,000 (1.4% of employee jobs) in April 2019 and 443,000 (1.6%) of employee jobs) in April 2018, albeit the ONS proclaims that no conclusions should be drawn with regards to the percentage change because new rates are introduced at the start of April, at which point in 2020 many employees were furloughed and a pay rise was not judicious amidst COVID-19 (coronavirus) related disruption to business markets and cashflow – as at April 2021, the number of jobs paid below the NMW and NLW almost halved over the year to 1,084,000 (3.8%) employee jobs "due in part to the reduction in the number of people on furlough with reduced pay".

The rationale behind the LPC's NMW and NLW year-on-year recommendations put forward to the government considers factors such as: the underlying increase in consumer price inflation, and the impact on both owner occupiers' housing costs and the general cost of living; the rate of both unemployment and employment in the United Kingdom, (i.e., labour market conditions); prospects for the wider economy going forward and the current level of UK productivity and productive output; and pay settlements and general earnings growth, to name a few key factors that are consulted on. Commenting on the NMW and NLW increase on 1 April 2020, upon announcement in December 2019, the Chair of the LPC made the following statement...

"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. The Chancellor's intentions for the next phase of the NLW will mean further ambitious increases. We will continue to keep a close eye on the evidence and to report to the Government on the challenges this involves".

The NLW increase on 1 April 2020, commissioned by the government upon recommendations made by the LPC, meant that the rate rose to the target 60% of median earnings; the target, to be achieved by 2020, was originally set by the government in 2015. In October 2018, addressing the House of Commons in the Autumn Budget, the then Chancellor of the Exchequer set out ambitions for the future of the NLW, NMW and the LPC, stating government "will need to give the LPC a new remit beyond 2020" and "will want to be ambitious with the ultimate objective of ending low pay in the UK". Published on 11 March 2020 was the government's remit to the LPC, outlining areas they should consider when recommending the 2021 NMW and NLW rates. In this remit, the government asked the LPC to "monitor and evaluate the National Living Wage and recommend the rate which should apply from April 2021 in order to reach two-thirds of median earnings (of those eligible for the National Living Wage) by 2024, taking economic conditions into account". Further to this, the LPC was asked by government 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."

Taking into account the multitude of external economic and socio-economic variables when offering its NMW and NLW rate recommendations to the government, the LPC afforded the government is recommendations for the April 2021 NMW and MLW rates at the end of October 2020. The aforementioned recommendations were accepted by the government in full, as announced on 25 November 2020, and the LPC subsequently published its National Minimum Wage Low Pay Commission Report 2020 in early-December 2020. Coming into force on 1 April 2021 for the 2021-22 fiscal year, the NLW increased by 2.2% - 19p in absolute terms - and was extended to 23- and 24-year-olds for the first time. Commenting on the LPC's recommendations and then-forthcoming rate change, the Chair of the LPC stated...

"Recommending minimum wage rates in the midst of an economic crisis coupled with a pandemic is a formidable task. The difficulty in looking forward even to next April is daunting. There are strong arguments concerning both low-paid workers – many performing critically important tasks – and the very real solvency risks to which small businesses are currently exposed. In these unprecedented conditions, stability and competence are prime requirements. Our value as a social partnership is to use the imperfect economic evidence to produce a recommendation which is professionally researched and dispassionate. Most importantly, after much debate it has the support of the business, trade union and academic representatives who make up the Commission. We have opted for a prudent increase which consolidates the considerable progress of recent years and provides a base from which we can move towards the Government's target over the next few years."

Upon enforcement of the NMW and NLW increases on 1 April 2021, the Chair of the LPC made the following comments...

"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."

On 3 March 2021, the government published its remit to the LPC outlining areas to consider when recommending the 2022 NMW and NLW rates applicable from April 2022, with a view to reaching a target of two-thirds of median earnings by 2024 and simultaneously taking economic conditions into account. On 1 April 2021, the LPC published "The National Minimum Wage in 2021" report which outlined how the LPC would approach its recommendations on the April 2022 rates, in the context of economic uncertainty and recovery from the pandemic. The report set out an indicative and conditional pathway to the aforementioned target of two-thirds of median earnings, with the LPC stating its then best current estimate for the on-course NLW rate. On 27 October 2021, the LPC and government announced NLW for those aged 23 and over would be set at £9.50 from 1 April 2022 for 2022-23, a 6.6% - 59 pence – increase compared to the year prior. However, the LPC's recommendation of a lower rate of £9.50 compared to its previous central path scenario for 1 April 2022 (£9.58) was "for several reasons" related to the base effects of economic volatility in respect of post-pandemic pay recovery.