Chancellor Rachel Reeves is reportedly gearing up to announce a significant increase in the minimum wage in the upcoming Budget, setting the stage for businesses to brace for the impact on their finances. The proposed rise is expected to establish a new living wage, with government insiders hinting that the new level could exceed earlier forecasts. The Low Pay Commission has adjusted its calculations to focus more on the cost of living and projected inflation rates after the Chancellor expanded its mandate over the summer.
Initial estimates from the Low Pay Commission indicate that the national living wage could reach £12.10 by April 2025, representing a 5.8% increase. This figure is higher than the March estimate of £11.89 and suggests a potential range between £11.82 and £12.39. The upward trend is attributed to stronger salary growth this year, surpassing previous expectations.
Inflation figures show a decrease to 1.7% in September from 2.2% in August, significantly lower than the peak of 11.1% recorded in October 2022. Additionally, the Labour Government’s first economic declaration in 15 years is anticipated to lower the earnings threshold for employer-paid National Insurance contributions. Labour has committed to avoiding increased VAT, National Insurance, or income tax burdens on working individuals but may propose raising employers’ National Insurance contributions by at least one percentage point, potentially impacting small businesses.
Despite assurances from Education Secretary Bridget Phillipson that there will be no additional taxes on workers’ pay slips, uncertainties remain about maintaining the freeze on income tax thresholds that could push more individuals into higher tax brackets. Speculation suggests a reduction in the earnings threshold at which employers begin paying National Insurance contributions alongside an increase in employer contribution rates to generate approximately £20 billion, supporting public services and economic stability.
While ministers have not released firm details, projections for the Budget announcement include potential changes that could have significant implications for businesses. Prime Minister Sir Keir Starmer is expected to address the “harsh fiscal reality” in his pre-Budget speech, offering a message of hope for better days ahead. The upcoming Budget could shape the economic landscape and set the tone for fiscal policies that aim to balance public service investments and economic resilience.