What next for the National Living Wage?

What is happening to the National Living Wage next year?

The National Living Wage (NLW) is forecast to rise from £10.42 to £11.16 in April 2024, an increase of 7.1%.

This will mean the Low Pay Commission’s target of ensuring that the NLW meets two-thirds of median income will likely be met and that the government will have technically achieved its aim of abolishing ‘low pay’. But with cost-of-living pressures biting, many workers still feel low paid, while businesses are also struggling to make ends meet.

The CBI has called for a new approach to boosting living standards that prioritises productivity growth.

In evidence to the Low Pay Commission in early September, we highlighted that the UK now has one of the highest minimum wages in the world. But it also has an abysmal track record on securing the productivity growth needed to fund higher real terms pay.

The latest ONS statistics suggest that the UK is still yet to see productivity recover to pre-pandemic levels, while our latest forecast suggests it will remain 2% below its (already weak) pre-Covid trend by the end of 2024, and 20% below its pre-financial crisis trend.

With productivity growth so poor, there are few options left for businesses – either they cut investment budgets to pay for higher costs, reduce headcount or put up prices.

In recent years the CBI’s surveys have consistently shown that NLW increases have been afforded by price rises. Last year, 48% of businesses affected by the NLW passed on the added cost to consumers. That has undoubtedly contributed to the country’s difficulty in controlling inflation and demonstrates that using minimum wage policy in isolation to boost living standards is not enough.

To truly boost the living standards, we need to revive business investment.

The CBI’s latest economic forecast shows that by the end of 2024 the UK’s level of business investment is predicted to only rise back to where it was at the end of 2015 and will continue to lag the rest of the G7 economies.

But that is not inevitable. With the right interventions tackling labour shortages and fixing our broken planning, tax and skills systems, the UK will be able attract the capital needed to finance the productivity improvements to sustain broad increases in living standards.

This was one of the key points we made in our evidence: with the two-thirds of median income target for the NLW close to being met, it’s time for the government to commission a new remit that considers first and foremost the capacity for businesses to fund rises to the NLW without putting up prices.

If you have questions about our work on pay policy or would like to share your experience with the NLW please get in touch with Laurence Raeburn-Smith.