2026/27 National Living Wage and National Minimum Wage increases

In addition to the recommendations, the LPC was also asked to consider introducing a single adult minimum wage rate, removing age-based pay bands. This is a positive step for younger workers, but it leaves employers facing even more challenges.

The Autumn Budget 2024 introduced a series of fiscal measures that have significantly increased employment costs for UK businesses. Notably, the employer rate for National Insurance Contributions (NIC) rose from 13.8% to 15%, while the secondary threshold was reduced from £9,100 to £5,000 per annum. This change means that employers are now liable for NIC on a much broader range of earnings, including those of part-time staff who previously fell below the threshold.

In parallel, the NLW and NMW rates saw substantial increases. Workers aged 18–20 experienced a 16.3% uplift to £10.00 per hour, while those aged 21 and over saw a 6.7% rise to £12.21. Apprentices and workers under 18 received an 18% increase.

Taken together, these measures have sharply escalated labour costs. For businesses employing staff on the NLW rate, the combined impact of wage increases, higher NIC rates, a lower NIC threshold, and ongoing pension contributions (which also bring pensionable pay increases) equates to an estimated 10% rise in total employment costs per worker. This is placing considerable pressure on margins, particularly for sectors reliant on entry-level and part-time labour.

The British Retail Consortium (BRC) warns that, taken together, these policy changes are set to cost the retail sector around £5 billion a year.  This financial strain risks compressed profit margins, potential price rises passed onto consumers and could force retailers to scale back hiring or even consider layoffs to manage payroll costs. Retailers warn of rising prices and job losses if the Chancellor hikes taxes.

The BRC’s survey of CFO’s from retail representing over 9,000 stores revealed that:

• 85% had already raised prices due to budget changes.
• 65% expect further price increases in the coming year.
• 42% froze recruitment, and 38% reduced job numbers.
• Nearly 100,000 retail jobs were lost in Q1 2025 compared to the previous year.
• 88% of CFO’s listed “tax and regulatory burden” as one of their top three concerns.
• Retailers are disproportionately affected, paying 21% of all business rates despite representing only 5% of the economy.

Drawing on detailed budget modelling*, the following data outlines the financial implications of the increased NIC and NMW/NLW rate changes and offers strategic insights to help employers prepare for further increases to the NMW/NLW rates pending any tax rise announcements later in the year.

(*All calculations assume a 3% employer pension contribution in line with auto-enrolment requirements, 0.5% apprenticeship levy, and that personal tax allowances and tax rate bands remain unchanged for the 2026–27 tax year)

Key National Minimum Wage changes for 2026/27

Assuming the 18–20-year-old rate is aligned to the NLW rate from April 2026, which the LPC have been asked to consider, would be a significant change, representing a 27.1% increase in just one year.  To ease the impact and support alignment with the NLW by April 2027, the LPC may recommend a further phased increase from the current £10 per hour rate in April 2026 for 18–20-year-olds. 

Cost impact for employers

Standard NMW employees (based on 50 staff)

The projected increase for 2026/27 is more modest compared to the sharp rise of nearly 10% that followed the Autumn Budget 2024.  A slower rise helps with budgeting, staffing decisions and keeping the business running without sudden financial strain.

However, if the LPC recommends aligning the NLW for 18–20-year-olds from April 2026, rather than implementing a gradual increase, the cost impact for younger workers is substantial.

18–20 year olds (based on 10 staff)

Implications of the NLW and NMW increases for employers

1. Budget planning
   Employers must factor in the anticipated rise in costs for younger workers, especially in sectors with high youth employment (e.g., retail, hospitality, care).
2. Reward strategy
   With pay parity across age groups, businesses may need to reassess internal pay structures and progression pathways to maintain motivation and retention. This may include pay rises and reward structure for those in more senior positions, too.
3. Workforce composition
   Consider the balance of full-time vs part-time roles and age demographics to optimise cost efficiency.
4. Apprenticeship Levy
   The assumed 0.5% levy adds further pressure - ensure it is taken into account in strategic planning.

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The 2026/27 proposed NLW and NMW changes reflect a broader policy direction toward wage equality and improved living standards. While the overall increase for standard employees is moderate, the uplift for younger workers may be substantial, depending on where the LPC recommendations land and could reshape cost dynamics for many employers.

Proactive planning, scenario modelling, and strategic workforce management will be key to navigating these changes effectively.  Should you wish to discuss how these changes could impact your business, please get in touch.

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