The 2025 budget is expected to increase the cost of living by 6%

The country’s cost of living is expected to rise by at least 6% in 2025 and the minimum wage for people aged 18 to 20 is set to rise further as experts await the Chancellor’s announcements in tomorrow’s Budget.

Rachel Reeves is set to announce a pay rise that is well above inflation (1.7%) and above the level forecast in September, affecting more than a million of the UK’s lowest paid workers.

Ministers will give 18 to 20-year-olds an even bigger increase in 2025 as they move towards their goal of achieving pay parity for all adults. These workers currently earn at least the national minimum wage of £8.60 an hour, but the scale is moving towards a flat rate, which will mean they will eventually be paid the same as people aged 21 and older.

There are currently around 1.6 million workers on the National Living Wage hourly rate of £11.44, but this is set to rise to £12.12 in a bid to “raise the floor” on wages.

Last month the Low Pay Commission, the independent body that advises the government on the minimum wage, expected the hourly rate for over-21s to rise by around 5.8% to £12.10, but more is expected rising income will lead to even greater growth.

The LPC predicts that the national living wage will be between £11.82 and £12.39 in 2025.

The former government’s national living wage target was two-thirds of average hourly earnings, and Labor ministers have said they want to maintain that figure.

Average growth in recurring revenue excluding bonuses for the year to August 2024 was 4.9%.

According to reports, from April 2025 the national living wage could reach between £12.12 and £12.20 per hour.

The national minimum wage (the rate for people aged 18 to 20) will rise by the largest amount in 2025. To begin to close the national living wage gap, the national minimum wage must increase to at least £9.27. To close the gap sustainably over the next four years, an increase to around £10 per hour may be needed.

However, despite the Government’s optimism about good news for “working people”, there are concerns about the cost to businesses of the expected National Insurance Contributions (NICs) that will need to be paid out of wages.

In tomorrow’s announcement, Reeves is also expected to increase employers’ NICs by two percentage points.

Some economists believe this will have a knock-on effect on workers, as employers may lower wage rates, reduce hiring due to the costs involved, or offer employees less hours to work.

Last week, the Living Wage Foundation announced new rates for the voluntary, “real” living wage. Outside London the new rate is £12.60 per hour, while in the capital it is £13.85 – an increase of 5% and 5.6% respectively.

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