National Living Wage lift is not without cost to some workers and economy

Sky News

01-04-2025

The first of April marks the turn of the financial year as well as Fool's Day, but the cost of living increases arriving this month are no joke.
Combined water, energy, council tax and communications bills are rising almost £450 for average households, more of a gut punch than a punchline for already stretched households.
The increase is largely driven by a long-delayed correction in water bills and energy price fluctuations, but there is some consolation on the other side of the ledger, with household incomes also rising across the board, a trend ministers are predictably seeking to highlight.
Pensioners have become used to the triple-lock delivering income growth and this year's 4.1% settlement amounts to an additional £471 a year for those on the new state pension.
Wages more generally, meanwhile, have been rising faster than inflation for almost two years, and were running at 5.6% in January (though individual pay packets are determined by employers).
The most impactful change however is to the National Living Wage (NLW), up 6.7% this month, worth £1,386 a year more to someone working a 40-hour week, who can now pull down an annual salary of more than £23,000.
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The NLW is one of the more strikingly effective public policy interventions of the last 30 years.
Backed by governments of all stripes (as popular measures that cost the state nothing tend to be) it has delivered more money to young and lower paid workers without causing the unemployment spike of which some warned when it was introduced in 1998.
Guided by the Low Pay Commission, it last year achieved the goal for which it was established, to lift the minimum wage to two-thirds of the median salary.
Cost of living calculator: See how much your bills are going up
That is not to say it is without cost. The increases are a burden to employers, one that is felt more keenly this year with the imminent halving of the employer National Insurance threshold increasing annual costs by more than £700 per-NLW employee.
There are also pressures further up the pay scale, with wage "compression" requiring employers to pay everyone more, as lower earners close the gap on their more senior peers.
Economists warn there is also a danger that higher wages disincentivise companies from taking a risk on younger and traditionally cheaper workers, and instead target the experienced and already employed.
There is also the question of what it means for graduates, who will emerge from higher education with improved long-term prospects, but laden with debt and looking at starting salaries not a lot higher than they may have earned in their part-time summer jobs.