1.7 million workers set to benefit in full from near 10 per cent rise in the National Living Wage

NLW has almost doubled real pay growth for Britain’s lowest earners

Around 1.7 million workers are set to directly benefit when the National Living Wage (NLW) rises by 9.7 per cent to £10.42 an hour on 1^st April, as new analysis shows that the NLW has almost doubled real pay growth for Britain’s lowest earners, the Resolution Foundation says today (Friday).

The 92p rise in the NLW – the legal wage floor workers aged 23 and over – is the biggest annual cash rise in the 24-year history of the UK minimum wage. It is also the third biggest annual percentage rise – beaten only by the 10.8 per cent rise in 2002, and the 10.8 per cent rise when the National Living Wage was introduced for workers aged 25 and over in 2016.

The scale of the increase – coming at a time when inflation is expected to be around 7 per cent in April – means that the UK’s lowest-paid workers are set to enjoy a rare real-terms pay boost even while typical hourly pay rates are set to continue shrinking in real terms.

Around 1.7 million workers currently earning up to 5p above the current minimum wage will directly benefit in full from the increase in the NLW, though potentially another five million low-paid workers will benefit indirectly from its ‘spillover’ effects as employers look to maintain differentials between pay bands.

Looking at the wider impact of the minimum wage since its introduction in April 1999 (when it was £3.60 for workers aged 22 and over), new Resolution Foundation analysis shows how it has transformed hourly pay inequality across Britain.

During the pre-minimum wage period (1980-98), real hourly pay growth was strong (2 per cent a year at the median) but also deeply unequal – twice as strong for the top fifth of earners as it was for the bottom fifth (3.2 per cent vs 1.4 per cent).

The introduction of the National Minimum Wage (NMW) completely reversed that pattern. Between 1998 and 2015 – a period in which typical annual real pay growth fell to just 0.6 per cent – pay at the bottom was around 50 per cent stronger than at the top (1.4 per vent vs 0.6 per cent).

This pattern has been strengthened by the introduction of the NLW, turbo-charging increase in the UK’s wage floor. The period 2015 to 2022 saw a continuation of weak growth for typical hourly pay and real pay actually falling for the highest earners. But in contrast growth rates almost doubled to around 2.5 per cent for lower earners – stronger even than during the 80s and 90s.

The Foundation notes that by significantly putting rising pay inequality into reverse, the NMW and NLW have also halved the incidence of hourly low pay – from 22 per cent of employees in 1998 to just 10.5 per cent in 2022.

However, it cautions that the policy has not had the same effect on weekly pay inequality – which has fallen by far less over the past 25 years. This shows that hours worked, not just hourly rates, matter for living standards.

More broadly, income inequality has remained high (the second highest among advanced OECD economies, behind the United States) and largely unchanged, reminding us that action on low pay must be complemented by wider drives on employment, taxes, benefits and housing costs, if Britain is to reduce inequality and raise living standards for low-and-middle-income families.

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

“From tomorrow, millions of Britain’s lowest earners are set for a significant pay boost as the National Living Wage rises by almost £1 an hour. This latest rise isn’t just delivering a much-needed pay rise tomorrow, it has transformed earnings across Britain over the past quarter of a century – reversing rising pay inequality and halving levels of low pay.

“But as well as celebrating the success of the National Living Wage it’s also important to understand its limits.

“Ultimately, continued progress on tackling low pay should be complemented by action to boost people’s hours and employment, as well as reforming our tax, benefit and housing systems. That’s only way to really get living standards up, and income inequality down.”