At the Autumn Budget, the UK Government announced that the National Living Wage will increase by 4.1% in April 2026.

A recent Work Foundation survey found that low paid workers are pessimistic about their financial situation with only 42% of respondents earning less than £25,000 indicating that their pay is keeping up with the cost of living. In this context, the above inflation increase due in April is likely to be a welcome boost for the millions of low paid workers still facing persistent cost of living pressures.

However, a growing number of voices have raised concerns that any further significant increases to the minimum wage may risk undermining the appetite of businesses to recruit. The Resolution Foundation has argued that we are in unchartered territory – there is limited data on the employment effects of minimum wage increases beyond the UK level which is one of the highest in the world.

Given unemployment has been steadily creeping up over the last year, this issue is likely to dominate labour market debates in 2026. Given that the latest increase to the National Living Wage was already the lowest in percentage terms for 11 years, might we already be seeing a potential change of policy direction?

The UK minimum wage is a significant public policy success story

The UK minimum wage has been a significant policy success since it was introduced over 25 years ago. In 2016, the Conservative Government rebranded it as the National Living Wage for workers aged over 25 and since then Governments – faced with fiscal pressures – have used the minimum wage as a policy lever to help workers in the face of a series of economic shocks.

Despite initial warnings in the 1990s about the potential impact on employment, a subsequent academic consensus emerged that increases in the minimum wage had not led to increases in unemployment.

Figure 1: UK National Minimum Wage rises from 2016-2026 by age bracket

Source: National Minimum Wage Statistics, House of Commons Library (12 February 2025),

However, the UK minimum wage is now the second highest in Europe and Government Ministers may not be able to rely on it as heavily in the future to boost pay for low-income workers. In recent years, businesses have been hit by rising costs due to the increase in employer national insurance contributions and more expensive industrial energy prices.

Against a backdrop of sluggish growth and increasing pressure on businesses, the conditions for continued above inflation increases in the minimum wage may well be over. In the long-run, Government needs to create the environment for economic growth to raise living standards alongside action on the cost of living in energy, childcare, housing and transport to ensure workers on the minimum wage do feel better off.

Equalising youth minimum wages is the right goal but flexibility in approach may be needed

Young people have faced a mix of health and employment challenges in recent years, and evidence suggests they are among the most pessimistic about their living standards and employment prospects. Work Foundation survey research has found that two in five (43%) young workers are worried that their deteriorating health could push them out of work while only 55% report having job security and autonomy. Therefore, increases in the youth minimum wage are welcome as even temporary spells in low-paid or insecure work can have detrimental effects on mental health.

However, young people are also struggling to find work as the number of vacancies continues to fall. Nearly one million young people aged 16-24 are not in education, training or employment and 46% of this cohort are disabled. Young people have borne the brunt of the recent rise in unemployment over the last year – one in two newly unemployed people are under-25. Spells out of work for young work can lead to scarring effects that lead to a decline in career prospects and earnings potential over the long run.

The Government aims to equalise youth minimum wages by the end of Parliament, but it should be open to a more flexible timeframe to achieving this goal to avoid any unintended consequences of equalising rates on job availability for young people.

In light of this youth employment slowdown, the Government should consider broadening the Low Pay Commission’s remit to factor in wider labour market trends as well as changes in fiscal and monetary policy. In a challenging labour market, it is important that future rises in the youth minimum wage do not negatively impact youth employment opportunities.

Raising minimum wages is just one lever to improve living standards and experience of work

As part of the landmark Employment Rights Act, the Government is launching a new Fair Work Agency in April 2026 which will be a single enforcement body responsible for overseeing compliance with employment rights and protections. Its work will be crucial as the minimum wage increases.

Enforcement of the minimum wage is vital to ensure that people on low pay get the money they are entitled to. Latest estimates from the Low Pay Commission indicate that in 2024, around 370,000 workers were underpaid. Enforcement powers currently lie with HMRC, and workers may be apprehensive about speaking out. The creation of the Fair Work Agency has the potential to improve state enforcement of labour market regulation and empower workers to assert their rights in the workplace.

While successive above inflation increases to the minimum wage have all but eliminated the incidence of ‘low pay’ – defined by the Low Pay Commission as two thirds of median pay – the UK workforce remains divided with those on lower incomes workers less likely to have access to flexible working arrangements and more likely to be on insecure contracts.

The Employment Rights Act has the potential to close these divides and improve job quality for lower paid workers. For example, the shortening of the qualifying protection against unfair dismissal and the right to guaranteed hours has the potential to increase job security for nearly four million workers. However, these measures will only be effective only if there is proactive and effective enforcement of new employment protections.

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