Government Reconsiders Pace of Youth Pay Increases
Andy Burnham's team is taking another look at the timetable for lifting youth minimum pay after concerns that recent moves could be dampening hiring.
Labour's 2024 manifesto promised to remove age bands that let employers pay under-21s less than older adults, and ministers had been speeding up that convergence. The manifesto did not set a specific date to align pay for 18 to 20-year-olds with those aged 21 and above.
What Changed in 2024
The minimum wage increases this year were uneven by age. The adult rate rose 4.1% to £12.71, equal to $17.19. The rate for younger adults climbed 8.5% to £10.85, and the minimum for 16 to 17-year-olds went up 6% to £8.00.
Cutting the share of 16 to 24-year-olds who are outside work, training or education has become a core focus for Burnham. Officials are testing whether the pace of pay rises for younger workers has been knocking hiring. A broader review of youth unemployment is due in the coming weeks, and the government is considering whether changing tack could ease higher employment costs and stimulate the youth jobs market.
Looking to the Netherlands for Clues
Policy teams are examining the Dutch setup, which uses multiple age-specific minimums, according to people familiar with the work who spoke to Bloomberg. In the Netherlands, the hourly minimum comes to €14.99, or $17.39, for those 21 and older. The rate is €7.50 for 18-year-olds and €4.50 for 15-year-olds.
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Dutch teens and young adults also commonly take casual and weekend shifts alongside school. Across the Netherlands, 74% of Dutch 15- to 29-year-olds hold jobs alongside their studies, the EU's top rate. According to the UK's Department for Work and Pensions, 4.8% of young people in the Netherlands are not in work or training, versus 13.6% in Britain.
Alan Milburn, a former Labour cabinet minister who wrote the youth worklessness review, visited the Netherlands this week to see how it maintains lower levels of economically inactive youths than the UK. He suggested he could urge slowing or even reversing planned youth wage rises, telling reporters the government must "make it as easy as possible" to employ young people.
The Process and the Timeline
Each year, ministers set guidance for the independent Low Pay Commission, which then proposes how much to raise the minimum wage. Earlier this year, ministers revised their guidance so that decisions for younger workers would put employment rates ahead of wage levels. The next recommendation arrives in October, after which the government may either accept it or decline.
In its manifesto, Labour did not spell out a timetable for aligning pay for 18 to 20-year-olds with those aged 21 and over. Any shift by Burnham to ease back on faster youth pay increases could meet pushback from Labour MPs who ran on the promise to remove age bands.
What It Means for Your Portfolio
This is about the cost of hiring and how quickly young people get a foot in the door. Slower youth pay hikes could lower entry costs for employers and draw more teens and twenty-somethings into jobs, while the broader aim remains narrowing the gap with adult wages.
Keep an eye on October's recommendation and the youth unemployment review in the coming weeks. If policy opens more entry-level roles, that can ease staffing bottlenecks for consumer and service businesses. If pay equalization continues at a faster clip, it lifts incomes for younger workers and shifts spending power accordingly.
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