On 30 October, the government confirmed the NLW rates for 2025:

The LPC has published a policy paper setting out how it will approach recommendations to the government on NLW rates for 2025 following the updated remit from the new Labour administration.

Its key points are:

• The NLW increase in 2025 should take into account the cost of living and expected inflation up to March 2026 and not fall below two-thirds of median hourly earnings. These act as a ‘floor’ to the LPC recommendations.
• The remit from the government to the LPC says how important it is to ‘boost low earnings’. So, there is scope for the LPC to recommend increases above the ‘floor’ if the economic evidence supports this, i.e. taking into account the impacts on business, competitiveness, the economy and the wider labour market.
• The LPC would only recommend a NLW below the ‘floor’ if this was necessary to avoid substantial negative outcomes, such as significant job losses among low-paid workers.
• The government’s ambition is to abolish the 18–20-year-old rate so that the NLW applies to those aged 18 and above. The new remit says that the LPC should achieve this by ‘taking steps year by year’ and so ‘in the interim’ the LPC says it is its aim is to reduce the gap between the 18-20 rate and the NLW.

In its updated statement the LPC estimates that a NLW increase in April 2025 to £12.10 would be required to maintain the ‘bite’ (the ratio of the NLW to median hourly pay) at two-thirds of median hourly earnings.

However, the LPC goes onto say ‘predicting this figure is challenging, so we project a range around our central estimate which runs from £11.82 to £12.39’.

‘We also believe our central estimate (and the ranges around it) may continue to rise over the rest of the year because earnings growth in 2024 so far has been stronger than forecast.

'Our estimates have already increased from those we published in March this year for this reason.'

The LPC estimate published in March for the NLW was within a range of £11.62 to £12.18 with a central estimate of £11.69.

The NFU is making further representations to the LPC to make it aware of the impacts on farming and horticulture that such a significant increase to the NLW will have.

Read the LPC’s statement in full.

The new government has issued a fresh remit instructing the LPC to:

• Recommend a NLW rate that does not drop below two-thirds of median earnings that considers:
  • the impact on business, competitiveness, the labour market and the wider economy
  • the cost of living.
• Recommend a rate for 18 – 20-year-olds taking into account an ambition to narrow the gap with the NLW taking steps year by year in order to achieve a single adult rate applied to all workers over 18 years of age.

In 2023 the LPC gave a projection for the NLW to apply from April 2024 in a range with a top end of £11.43.

However, because wage inflation was high through 2023, the actual NLW rate recommended and accepted by the previous government was just outside the top end of the LPC’s early projection band at £11.44.

Wage inflation year to date is strong, between 5% and 6% annual growth, and it is possible that in order to keep the NLW at two-thirds of median earnings the rate will likely be at the top end of the LPC’s projection for 2025.

Many factors will be taken into account by the LPC when recommending a NLW rate for 2025 and it is not known what actual recommendation will be made especially if the cost of living is taken into account.

But, high wage growth across the economy suggests that the NLW will be above the mid-point of £11.61 identified in the LPC’s projection published earlier this year.