National living wage rate goes up 4.1%

Sara White, Editor, Business & Accountancy Daily. Croner-i

Above inflation rises to national living wage to £12.71 per hour and a significant 8.5% hike in national minimum wage.

The government has confirmed above inflation rises in the national living wage with a 4.1% rise, while national minimum wage up 8.5% from 1 April 2026.

This year’s hike to national living wage is down on last year’s 6.7% which caught employers off guard. This time the hike is closer to the current 3.4% inflation rate.

This means a worker on a 37.5 hour working week would earn £24,784.50 per annum. This is just below the median real terms graduate salary of £26,500, according to Department for Education figures.

Announcing the change at a Primark store, chancellor Rachel Reeves said: ‘These changes are going to benefit many young people across our country, getting their first job. 

‘These changes mean that from April, the national minimum wage and the national living wage will boost the pay packets of around 2.7 million workers. 

‘For a full-time worker on the national living wage, that means an increase in pay of £900 a year. 

‘And for someone on the national minimum wage, working full time, it will mean a £1,500 increase.’ 

But many groups including even the left leaning Resolution Foundation warned that the large increases were likely to make it even harder for young people to access the jobs market. 

Highly respected economist Mohamed El-Erian said: ‘The scale of the hikes will surprise many, not least because they may cut against the government’s stated ambition to tackle the “crisis of opportunity” facing younger workers, particularly if higher labour costs ultimately limit hiring.’

From 1 April 2026, the national living wage (NLW) will rise by 4.1% to £12.71 per hour for eligible workers aged 21 and over. This will increase the gross annual earnings of a full-time worker on the NLW by £900, benefiting around 2.4m low-paid workers.  

The national minimum wage (NMW) rate for 18 to 20-year-olds will also increase by 8.5% to £10.85 per hour, narrowing the gap with the NLW. This will mean an annual earnings increase of £1,500 for a full-time worker, and marks further progress towards the government’s goal of phasing out 18 to 20 wage bands and establishing a single adult rate.  

The NMW for 16 to 17-year-olds and those on apprenticeships will increase by 6% to £8 per hour. 

The move was welcomed by trade unions but will add more pressure to businesses already heavily burdened by the large increase in employer’s national insurance announced last Budget. These came into effect from April 2025 and have added £24bn a year to the NI bill of UK employers. They have also had a chilling effect on confidence and employment opportunities.

Anna Vishnyakov, workforce partner at PwC, said: ‘Employers, especially those in retail and hospitality, where many staff earn near the minimum wage, must carefully plan how to handle these increases while staying competitive and compliant.

‘Employers will need to build this into their budgets for next year and consider the implications across their workforce as this adds pay pressure up the pay scales. It will be critical for employers to think about their overall reward package to ensure that they remain competitive.’

Paul Nowak, general secretary of the Trades Union Congress (TUC) said: ‘The government is delivering on its promise to make work pay. With living costs stubbornly high an above-inflation pay rise will make a real difference to the lowest paid. Putting more money in people’s pockets is good for workers and good for the economy as it goes straight back into our high streets and local businesses.’

Speaking at the annual CBI conference this week, Rain Newton-Smith, CEO of the business group, said: ‘A year on from a Budget that turned to business to plug a hole, loading on £24bn per year in extra costs, pushing the tax burden to a 25-year high…with two-thirds of those taxes hitting business before you’ve even made a profit.’

On the eve of the 2025 Budget, Newton-Smith warned: ‘One year later, here we are again…a new fiscal gap, billions of pounds wide. More rumours. More U-turns. Raising uncertainty, business holding its breath again. Investment paused, projects on hold.

‘It feels less like we’re on the move and more like we’re stuck in Groundhog Day. So right now, we face a fork in the road. Where our biggest fear is, if we get the wrong choices on Wednesday - more short-term tinkering, more bold choices not made, more politics over growth - then we risk getting locked in a stop-start economy.’

She called for a credible Budget, stressing: ‘You will never be able to tax your way to growth. Tax rises alone are bound to fail unless they are matched by forward momentum.’