The minimum wage will increase by 4% in April with even bigger increases for younger workers, under plans announced in the Budget on Tuesday.
Over-21s will see their minimum wage rise by 50p to £12.71 an hour while, for those aged between 18-20, it will rise by 85p to £10.85 an hour. For 16 and 17-year olds and apprentices, their minimum wage will rise by 45p to £8 an hour.
Many business owners have warned that increasing labour costs could lead to hiring freezes, further dampening demand on an already sluggish labour market. Tina McKenzie, policy chair of the Federation of Small Businesses, said in a press release: “With National Insurance contributions rising, employment costs climbing and hiring becoming riskier, small employers are thinking twice about taking people on”.
The potential of hiring freezes could affect young people hard, with fewer vacancies locking them out of the labour market. In a statement on 25 November, Jane Gratton, deputy director of public policy at the British Chamber of Commerce said: “Every above-inflation wage increase leads to higher business costs, lower investments and fewer opportunities. Making employment more expensive risks deepening the jobs crisis among young people.”
The latest jobs data from the Office for National Statistics found unemployment to be 5% and youth unemployment to be 15.3%, both steadily increasing for nearly 3 years. Total estimated vacancies were down by around 12% in August to October compared with a year ago. This has led to the number of unemployed people per vacancy reaching 2.5, its highest level in 10 years excluding the pandemic.
The increases to the minimum wage are meant to address the cost of living, but it may have adverse inflationary effects some have warned. In a statement on 25 November, Kate Nicholls, chair of UKHospitality said: “Hospitality business have reached their limit of absorbing seemingly endless costs. They will simply all be passed through to the consumer, ultimately fuelling inflation.”
The latest inflation figures show inflation to be 3.6% in the year to October, a decrease from the previous reading of 3.8% but still well above the Bank of England’s 2% target. Although, the weak demand in the labour market was a growing concern for them after having previously been focussed on inflation.
At their last meeting, the Bank decided to keep rates at 4% but it is expected that rates will come down at the next meeting. They said that the increase in unemployment was contributing to lower inflation: “Underlying disinflation is being underpinned… by building slack in the labour market.” They predicted that inflation will come down to 3% by early next year.
