National Minimum Wage (Amendment) Regulations 2025
(Limited Text - Ministerial Extracts only)
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Baroness Gustafsson
That the Grand Committee do consider the National Minimum Wage (Amendment) Regulations 2025.
The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)
My Lords, the purpose of these regulations, which were laid before the House on 4 February, is to enact the annual increases to the national living wage and national minimum wage rates. After the parliamentary passage of these regulations, minimum wage rates will go up on Tuesday 1 April 2025. The headline national living wage will increase by 6.7%, from £11.44 to £12.21 an hour, a real-terms pay rise that will benefit and protect millions of workers. This year, the national minimum wage rate for those aged 18 to 20 will increase by £1.40 from £8.60 an hour to £10.00. This is a record increase, worth 16.3% on an hourly basis, and it is also a significant step towards achieving the Government’s ambition to extend the top rate, currently mandatory for those aged 21 and over, to all adults.
We look forward to hearing additional detail on this point from the Low Pay Commission once it has completed its consultation on the trajectory and pace of this equalisation. In the meantime, we will also deliver substantial increases to the statutory minimum wage rates for younger workers and apprentices. The hourly minimum wage rate for workers aged above school-leaving age but under 18 will increase from £6.40 to £7.55, an increase mirrored for the apprentice rate, which is payable to apprentices aged under 19 or others in the first year of their apprenticeship. Finally, we will also increase the daily accommodation offset rate from £9.99 to £10.66.
At this point, I want to extend my thanks to the Low Pay Commission. The new rates are based on the recommendations made by the LPC, which has demonstrated, as ever, its diligence, thoroughness and adaptability. On behalf of the Government, I thank the noble Baroness, Lady Stroud, and her fellow commissioners, as well as all the officials involved at the commission for their continued hard work, particularly in a year where they responded to an updated remit after this Government took office. The Government are also grateful to the bodies that promote and enforce the minimum wage across the UK. In addition to ACAS, which ensures employment disputes are resolved as promptly as possible, enforcement and compliance officials at HMRC ensure that the rates we are enacting today will have a real-world effect, educating workers and employers, upholding the law and ensuring that any money due is repaid to the workers who have earned it. Indeed, since the minimum wage was introduced, HMRC and its predecessor bodies have overseen the repayment of more than £186 million to 1.5 million workers and the issuing of more than £100 million in financial penalties.
The Government are committed to building on this and bolstering the enforcement of employment rights through the creation of the fair work agency, which will include, among other areas, enforcement of the national minimum wage. The new body will provide better support for employers to comply with the law, but it will also have powers to take tough action against the minority who deliberately flout it.
In the meantime, the Government will continue to fund minimum wage enforcement through HMRC, and we will also publish a new naming list in due course of those businesses that have failed to pay their workers the minimum wage, showing that there are consequences for employers who flout the law.
This year’s uplift to the national living wage will deliver a gross pay rise of £1,400 for a full-time worker on the rate, while a full-time worker aged between 18 and 20 will see a gross rise of £2,500. It is worth emphasising that the 2025 national living wage is expected to have the highest real value in the history of the UK’s minimum wage, 78% higher than the main adult rate when the national minimum wage was first introduced in 1999. The national minimum wage rate for 18 to 20 year-olds will be equal to 82% of the national living wage in 2025, similar to the relative value when the national minimum wage was first introduced in 1999, and compared to 75% in 2024. In all, we estimate that more than 3 million workers will benefit directly from the increases, with the potential for millions more to receive an indirect pay rise as employers preserve pay differentials.
This year’s uprating is a crucial step towards delivering our manifesto commitment to a genuine living wage for all adult workers. This is a Government who are ambitious in their agenda for working people and serious about taking the necessary steps to deliver on it. We are delivering this through a direct, real-terms pay increase for millions of workers. We have also brought forward our landmark Employment Rights Bill, and we continue to work across the board alongside trade unions, employers and other stakeholders both to deliver on the plan to make work pay and to realise the biggest upgrade of workers’ rights in a generation.
Accordingly, the Government will issue in the coming weeks a new remit to the Low Pay Commission, asking it to recommend minimum wage rates to apply from April 2026. I commend this instrument to the Committee.
Lord Sikka (Lab)
My Lords, I welcome the increase in the national minimum wage, although most of its real value has already been eroded by hikes in the price of energy, water, housing, transport, internet, food, council tax and much more. I shall speak to two particular concerns.
First, I am concerned about the denial of the headline minimum wage rate to workers below the age of 21. The under-21s do not pay lower rates of income tax and national insurance, nor do they pay a lower price for housing, food, shoes, clothes, transport, medicines, internet, and other goods and services. However, they are condemned by law to receive a lower wage. The under-21s are paid a lower wage rate but the product of their labour does not sell at a lower price. This enables many an employer to profiteer. The denial of the full minimum wage has relegalised exploitation.
Over the years, the typical government response has been that low wages preserve employment opportunities for young workers, yet I meet young people who are working longer hours and holding down multiple jobs simply to collect a decent wage and to make ends meet. This cannot be good for their health; indeed, it will create pressures somewhere else. Young people on low wages are trapped in low-paid jobs. I have met many who would like to undertake part-time education in order to further their opportunities but cannot because they simply do not have the resources. I therefore urge the Government to abolish the lower rates of the minimum wage and to alleviate poverty.
Secondly, I am concerned about the enforcement of the statutory minimum wage. The annual reports published by HMRC show a steady parade of companies that fail to pay the required wage. Last year, 524 employers were named for failing to pay £16 million in wages to 172,000 workers. Over the years, the culprits have included companies such as Argos, easyJet, Estée Lauder, Greggs, Marks & Spencer, Moss Bros, WHSmith and many others. None of these offenders ever forgets to pay the agreed wage rate to their executives but, somehow, they always forget to pay their workers a statutory minimum wage.
Although the recovery of unpaid wages is highly commendable, the persistence of non-payment suggests that there are systemic problems and that the penalties are not high enough. The International Labour Organization’s Convention No. 81, signed by the UK, recommends at least one inspector per 10,000 workers to monitor compliance with workers’ rights. The UK has less than 0.4% of the benchmark requirement, and employers can expect an inspection once every 500 years. Can the Minister explain why the Government are not meeting the ILO requirements? There are potential fines of up to 200% of the underpayment of the minimum wage, and a maximum of £20,000 per worker, but I could not find anyone who has actually faced this maximum penalty. Can the Minister say when the maximum penalty was last levied?
The persistence of offences suggests that penalties are simply not effective. I urge the Minister to consider a minimum penalty, which should be equivalent to the remuneration of the entire board of directors, and at least 50% of it must be paid by directors personally. This would deal with the business scale problem and incentivise directors to pay the minimum wage. It would also improve their memory.
Lord Sharpe of Epsom (Con)
My Lords, I thank all previous speakers in this shortish but interesting debate. I will not go through the whole preamble; I note that the National Minimum Wage (Amendment) Regulations 2025 will result in an increase in the national living wage and the national minimum wage, as the Minister has outlined comprehensively. I was also going to heap praise on the impact assessment, which is an exemplar. I am slightly ashamed that I never managed to produce one like that, but I will learn my lesson for the future.
I will develop the themes mentioned by the noble Lord, Lord Fox. We obviously welcome these changes, but we approach them with a degree of caution and have several concerns, most of which are centred on the effect that they are likely to have on small and medium-sized enterprises. As usual, it looks to us as if they will bear the brunt of the increased labour costs. Indeed, it does not look that way just to us; according to the Government’s impact assessment, SMEs will account for 56% of the total monetised increase in labour costs, despite representing only 37% of the employment share. This is a disproportionate impact on SMEs and could have significant consequences, particularly, as the noble Lord, Lord Fox, has noted, given that many such businesses are already struggling with a number of combined pressures.
These are challenging business conditions, as the impact assessment specifically notes:
“Meanwhile, there is some evidence of challenging business conditions for SMEs specifically. Around 42.7% and 36.8% of micro and small businesses, respectively reported having less than three months of cash reserves in September 2024 (compared to 19.2% for large businesses)”.
That is a concerning picture of their cash. As the noble Lord noted, they will also have to wear increasing costs of employment because of national insurance contributions, and two to three times under the non-domestic rates Bill—particularly the hospitality industry, which is suffering disproportionately from some recent employment legislation.
I also concur with many of the things that the noble Lord, Lord Fox, said about the forthcoming Employment Rights Bill. As far as I can recall, the Government’s impact assessment for that Bill, which I think was published last week, said that UK businesses will pay an additional £5 billion as a consequence of that Bill but that it “could have” a potential “positive impact on growth”. That is not exactly a ringing endorsement from the Government’s own impact assessment when it comes to that legislation, which I am sure we will all scrutinise.
The CBI has raised concerns about the ability of businesses to absorb all these increases without affecting their bottom line. As it points out, while the national living wage has been effective in supporting low-income workers, it also adds pressures to businesses at a time when productivity growth is stagnant. This pressure, it argues, makes it difficult for firms to invest in the technology and innovation needed to improve productivity and deliver sustainable wage rises in the longer term.
The British Chambers of Commerce has warned that these changes could lead to price hikes, cuts in workplace training and difficulties with recruitment. Given the challenging economic backdrop, it is also vital that we carefully consider how these wage increases will affect SMEs and the economy as a whole.
Wage compression—I think the Minister called it pay differentials—must also be taken into account. As wages at the lower end of the spectrum rise, the gap between these wages and those of higher skilled workers may narrow. That would obviously create distortions in the labour market, which could reduce the incentive to pursue skilled professions or university degrees.
We have to ask whether the Government have considered the full economic impact of all these increases on businesses. How will they continue to support businesses in absorbing increased labour costs without jeopardising their ability to grow, invest and create jobs—and, of course, grow the economy?
The noble Lord, Lord Jones, touched on an extremely interesting point about apprentices. It is not necessarily directly connected to this, but have the Government investigated the effective price increase in employing them, which I think was announced in the Budget, to see what effect that has had on the numbers of people being offered and taking apprenticeships?
We recognise that these regulations are a welcome step towards improving the living standards of low-paid workers. His Majesty’s Official Opposition remain cautious, however, about their potential economic impact, particularly combined with all the other issues that we have highlighted. We support the principle of fair pay for workers but are concerned that the disproportionate burden placed on SMEs and larger businesses in sectors that are already struggling to make ends meet will have unintended consequences. I appreciate that these are general questions, but it would be good to hear some answers as to how the Government are planning to support businesses through these transitions. Much like the noble Lord, Lord Fox, I would also be interested to hear some more details on the fair work agency, if the noble Baroness is able to share them.
Baroness Gustafsson (Lab)
My Lords, I am grateful for the support across the Committee for these regulations and thank noble Lords for their valuable contributions to this debate. I will highlight some of the points raised. My noble friend Lord Sikka asked, rightly, given that these are times when our everyday costs are increasing, whether the real value of a lot of these wage rises has already been eroded.
Baroness Gustafsson (Lab)
My noble friend Lord Sikka asked about the real value of the minimum wage already being eroded. The 2025 national living wage is expected to have the highest real-terms value in the history of the UK’s minimum wage. In real terms, the national living wage in 2025 is expected to be about 4% higher than the 2024 rate and 78% higher than the main adult rate when the national minimum wage was introduced in 1999. I hope that goes some way to relieving some of those cost of living pressures.
On 18 to 20 year-olds being denied the full rate but still having the same living costs, we recognise that people in that band are more vulnerable to unemployment and that any impacts on employment costs or incentives to remain in training or education must be monitored very carefully as we proceed. We have asked the LPC to make progress on extending the national living wage to more adults than ever before by continuing to narrow the gap between the 18 to 20 minimum wage rate and the national living wage on a year-by-year path towards achieving a single adult rate, and we are delivering on that pledge.
There was a question around enforcement and the naming and shaming of those that do not comply with the minimum wage. The current system of employment rights is fragmented and ineffective and can be confusing for workers and employers alike, which can deliver bad outcomes for workers and the majority of businesses which want to do right by their staff. We are establishing the fair work agency to deliver a much-needed upgrade to the enforcement of workers’ rights. This is about bringing together the existing state enforcement functions in a single place which individuals and businesses can go to for help. Bringing together currently separate state enforcement functions will mean less duplication and better use of public money.
My noble friend’s last question was about penalties and enforcement. HMRC investigates breaches of the national minimum wage legislation. If it finds a breach, it orders the employer to repay the workers and also pay a penalty to the Government of up to 200% of the arrears owed to the workers. My noble friend asked about the last time and the circumstances in which that level of penalty was enforced. I confess I do not know the answer, but I will write to follow up with that information.
My noble friend Lord Jones raised questions around the complexity of regulations. Regulations can often be complex. They are by necessity complicated because they often deal with complicated issues that require balance on both sides. We have extensive guidance on them. Simplification can tend to make regulations easier to read but less precise and more open to avoidance, so it is a delicate balancing act that we are trying to navigate here. As mentioned earlier, we are grateful to ACAS for its work and encourage any employer or worker to contact it directly for guidance and assistance, which is often available.
My noble friend Lord Jones also asked a question about the number of workers on the national minimum wage and the number of apprentices in Wales. Roughly 150,000 workers in Wales are on the national minimum wage; for completeness, it is about 200,000 workers in Scotland and 160,000 workers in Northern Ireland. We remain committed to ensuring that apprentice wages support the attraction of talented individuals to apprenticeships and remain fair for employers. High-quality apprenticeships are often key to unlocking a more skilled and productive economy. On the apprenticeships statistics that were requested, I am happy to write to follow up on some of those specifics.
I turn now to the question from the noble Lord, Lord Fox, around the differences in the FWA as compared to previous enforcement agencies. The fair work agency will be a strong, recognisable single brand so that individuals know where to head to for help. It will have a more ambitious remit that goes further than the previous single enforcement body proposal. It will be about taking on and enforcing domestic agency rules, the national minimum wage, licensing standards for gangmasters and certain aspects of the Modern Slavery Act 2015. It will also take on additional rights, such as holiday pay and statutory sick pay, and there will be flexibility to bring in additional legislation as new challenges emerge,
The Deputy Chairman of Committees (Lord Ashton of Hyde) (Non-Afl)
My Lords, there is a Division in the House. We will adjourn for 10 minutes.
Baroness Gustafsson (Lab)
Before the Division, I was about to turn to the observations of the noble Lord, Lord Sharpe, the first of which was about the impact on SMEs and businesses. I remind noble Lords that we have accepted in full the recommendations of the Low Pay Commission. We are confident that these increases will help millions of families across the country without placing excessive burdens on businesses. The remit of the LPC asks it to take into account the impact on businesses, including SMEs, competitiveness, the labour market and the wider economy. The LPC draws on extensive labour market and pay analysis and stakeholder evidence when recommending rates.
Regarding support for businesses as they adjust to these new rates, the 2025 national minimum wage and NLW rates were announced in the Autumn Budget 2024, more than five months before the rates came into effect. These timelines are consistent with previous years, providing businesses with the maximum adjustment time. Similar to previous years, the Government will undertake an extensive communications campaign to increase awareness and understanding of the changes to the rates coming into effect from 1 April 2025 and to ensure that businesses and workers are prepared. The communication campaign is expected to include targeted activities specifically to support SMEs. The Government also publish extensive guidance online to support businesses in understanding the legislation and the steps required to comply.
This Government are proud to be delivering the biggest upgrade to the rights of working people in decades. An ambitious minimum wage, backed by robust enforcement, will always be a cornerstone of a Labour Government’s employment rights framework, and we are grateful for cross-party support on this vital measure. As noted, the Government’s impact assessment, which was published alongside this legislation, estimates a direct pay rise for more than 3 million people, covering all the nations and regions of the UK and every sector of employment. It is worth repeating that a full-time worker on the national living wage will receive a gross annual pay rise on 1 April of £1,400, while an 18 to 20 year-old working full time on the national minimum wage will benefit to the tune of £2,500 a year.
I reiterate the Government’s thanks to the noble Baroness, Lady Stroud, and the Low Pay Commission. Once a new remit is issued to the LPC, we will look forward to hearing its next recommendations later this year as we continue our path towards a genuine living wage for all adults. I commend these regulations to the Committee.
Lord Fox (LD)
May I just take the Minister back to before the Division, when we were starting to talk about the fair work agency? Either she has nothing more to tell us or it somehow got lost in the wash. Her response was somewhat thematic but really short on process. It is not clear to me how the fair work agency will be juxtaposed with other enforcement activities. In her answer to the noble Lord, Lord Sikka, the Minister talked about the role of HMRC. Will HMRC no longer have that role? If not, will the fair work agency have access to the data that HMRC has in order to make its prosecutions? That is just one of the outstanding queries about how this new agency will operate in the context of enforcing this important change.
Baroness Gustafsson (Lab)
I thank the noble Lord. I talked about the additional rights and enforcing the wider roles and rules of the domestic agency, but on how that will be impacted operationally, as well as the interface with HMRC, I will write to the noble Lord, Lord Fox, with some details on exactly how that will be undertaken.
Lord Sikka (Lab)
My Lords, perhaps I, too, could have one more bite. I referred to the penalty situation. The one we have at the moment enables directors to gain because the chances of all companies being inspected are very low. If they get away with it, they are quids in because the bottom line means that they will get a higher bonus and remuneration. If they are caught, there will be a penalty on the company, and they do not bear any personal penalties. Will the Government change that and make sure that directors personally pay at least half the penalty, as I suggested?
Baroness Gustafsson (Lab)
There is a lot of conversation about enforcement. We talked about the 200%. There is currently no legislation about directors’ personal accountability, but I am more than happy to follow up with the noble Lord on the specifics of what that would look like.