UK Low Pay Commission warns further minimum wage rises risk jobs

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Minimum wage risks jobs

Highlights

Low Pay Commission analysis warns raising UK national living wage above current £12.71 per hour risks potential job losses of 600,000 to 800,000.
Employers report increasing cost pressures in low-wage sectors like hospitality, with the LPC cautioning greater risks as the minimum wage approaches the UK median.
The government paused plans to phase out youth wage rates by 2030, directing the LPC to minimize employment risks for younger workers in 2027–28 recommendations.

Commission analysis flags limits to further rises

As reported by the Financial Times, the Low Pay Commission says any ambitious move to raise the UK wage floor further would depend on ministers accepting a higher risk of job losses. In analysis published on Friday, the advisory body says it cannot be certain the economy can absorb additional increases, partly because the effects of recent rises remain hard to isolate after Covid-19 and other shocks.

The commission says most of the scenarios it modelled show only a modest effect from a higher minimum wage, even if the national living wage rises to as much as three-quarters of median earnings. But some scenarios point to a much larger impact, with potential job losses of 600,000 to 800,000.

LPC chair Baroness Philippa Stroud says a further target for the national living wage would be needed if the government wants greater ambition and further reductions in hourly pay inequality. She adds that if ministers instead want to protect progress already made and respond more flexibly to economic conditions, the commission should be given more discretion over its recommended rates.

Pressure on low-wage sectors and youth employment

The warning comes as employers increasingly argue that the minimum wage, now set at £12.71 an hour for workers over 21, is adding to cost pressures in sectors such as hospitality. The LPC says the higher the government pushes the wage floor relative to median pay, the more uncertain the outcomes become and the greater the downside risks, including more intense work, fewer perks and weaker promotion prospects.

From 2015 to 2024, the national living wage rose sharply under a government commitment to bring it to two-thirds of median earnings. Ministers have asked the commission what conditions would be needed to move it closer to the UK median, but the LPC says there is no reliable way to be sure of the effects amid shifting economic conditions and other policy changes.

The debate is especially sensitive because ministers are concerned about rising youth unemployment while unions are pressing for youth rates to be aligned with the main adult rate. The government has paused plans to phase out youth rates by 2030, and the LPC's latest remit for 2027-28 asks it to recommend pay rates that minimise employment damage and take account of the risks to younger workers.

In our earlier article on analyst stock picks across consulting, travel and retail, we looked at how BTG Consulting, Jet2 and Currys are dealing with higher costs, uncertain demand and shifting market conditions. We noted that the investment case centered on earnings resilience, balance-sheet strength and the ability to keep returning cash to shareholders through dividends and buybacks despite the tougher backdrop.

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