The Recruitment and Employment Confederation (REC) has warned regulators against ‘excessively’ increasing the national minimum wage as it would put further strain on businesses.
This week, the Low Pay Commission (LPC)’s remit has been refreshed in advance of the Commission setting the rate of the National Living Wage and National Minimum Wage for 2026. Much like last year, the government has asked the LPC to take the following into account:
- Ensure the National Living Wage does not drop below two-thirds of UK median earnings.
- “Narrow the gap” between the National Minimum Wage for 18 to 20-year-olds and the National Living Wage.
- Make recommendations on the under-18 and apprentice National Minimum Wage rates.
At the same time, the LPC uprated its central estimate for the National Living Wage, suggesting it will need to increase to £12.71 to ensure it does not fall below two-thirds of median earnings.
The LPC’s recommendations are not purely formulaic, and they are required to take economic conditions into account, so these figures should be taken as indicative only. Their advice to the Government will be made by the end of October 2025.
A word of warning
The REC noted that there are other ways to tackle hardship and deprivation and embed progression and fair reward into the labour market.
“The labour market has steadily weakened over a number of years, especially at the low-pay end. Meanwhile, businesses have repeatedly seen their costs increase, with employment costs (like the increase in employer’s National Insurance Contributions and rising National Living Wage) one of the main factors.”
A poll run by the group asked employers about what adjustments they have made in response to increases in the National Living Wage and National Minimum Wage. They answered:
- 38% reduced recruitment or headcount
- 24% held back pay increases for other staff
- 22% limited training or development
- 21% scaled-back expansion or investment plans
- 15% cut employee benefits or bonuses
- Just 21% said they had made no adjustments in response to these cost increases.
“These rate rises often have a negative impact on those not already in the labour market, especially young people who often incur additional costs as a result of informal training and don’t have a track record of success in a job,” the REC said.
“Part of the LPC’s remit is to ‘take into account the effects [of an increased minimum rate] on employment of younger workers’”. We will continue to strongly make the case that there can be no resolution to the youth unemployment crisis without a solution that meets the needs and concerns of employers.”
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