The National Minimum Wage: Policy and developments
The National Minimum Wage is the minimum hourly amount workers must be paid. Currently it differs between different 'age bands', although the Labour government has committed to removing them.
The National Minimum Wage (NMW) is the minimum hourly amount of money employers must pay their workers. It applies throughout the UK. The full NMW rate applies to workers aged 21 and over, and this is known as the National Living Wage. Different rates apply for workers aged between 18 and 20, 16 and 17, and apprentices. Generally, volunteers are not eligible for the NMW, although in some cases they might (depending on any contractual arrangements).
The NMW is set by the government on advice of an independent statutory body, the Low Pay Commission (LPC). Each year, the government gives the LPC a remit, establishing parameters and objectives the LPC should achieve when setting out its recommendations.
Brief historyThe NMW was introduced in 1999 after the enactment of the National Minimum Wage Act 1998. The establishment of a minimum wage had been a controversial topic in the previous years, with the Conservative party (in government until 1997) opposing such a policy. The minimum wage is now generally accepted and supported by the main political parties, with Labour, Conservative, and coalition governments having committed to its continuation and expansion over the years.
A major change took place in 2016, when the Conservative government introduced the ‘National Living Wage’, which is effectively an enhanced NMW rate. It was originally introduced for those aged 25 and over, but by 2024, all workers aged 21 and over were eligible for it.
Why are there different NMW rates for younger workers?The LPC, which makes recommendations for NMW rates, has said the rationale for lower NMW rates for younger workers is because of their vulnerable position in the labour market (PDF). The LPC argued that younger workers may be priced out of the labour market if they were eligible for the NLW (because employers would be more likely to employ an older, potentially more experienced worker). The LPC stressed that money saved by employers in terms of a reduced NMW rate should be invested in training and development for those younger workers.
The Labour Party pledged in its 2024 electoral manifesto (PDF) to extend eligibility to the NLW to all eligible workers over the age of 18. In its remit to the LPC published in July 2024, the Labour government said it would “remove discriminatory age bands for adults”.
The LPC originally did not recommend the introduction of a NMW rate for 16 and 17 year-olds, but after seeing evidence of extremely low pay for that cohort, they began recommending a NMW rate for them too. This rate is set lower than the 18-20 rate, to signify that 16 and 17 year-olds in work form “a distinct labour market segment” (PDF), and the LPC did not wish to set a NMW rate that would damage their training prospects.
Enforcement and complianceBoth the government and workers themselves can enforce the NMW. Because a worker has a legal right to be paid at least the minimum wage, the worker can take a claim to a tribunal or a court if the employer is underpaying them.
The government enforces the NMW via HM Revenue and Customs (HMRC). Generally, this enforcement takes place via ‘notices of underpayment’, which direct the employer to pay underpaid workers any sums due, as well as a financial penalty to the government. In certain cases, the government may also ‘name’ noncompliant employers publicly. The government generally reserves criminal prosecution for the most serious and persistent cases of noncompliance.
Recent developmentsUpon taking office in 2024, the Labour government issued a new remit to the LPC. For the first time, the LPC was explicitly asked to research the impact of the cost of living when setting out its NMW recommendations, including future rates of inflation. The government also asked the LPC to begin closing the gap between the 18-20 rate and the NLW, to deliver a living wage for every working adult.
In October 2024, the LPC made its NMW rate recommendations to the government, which were accepted in full. The LPC is now consulting and conducting research that will inform its recommendations for the levels of the minimum wage in 2026. The LPC currently estimates the NLW will be set between £12.55 and £12.86 per hour.