Concern about the limits of further minimum wage rises

10th January 2026

Aman Navani, Research and Policy Analyst, Work Foundation at Lancaster University examines the future difficulties of the Minimum Wage looking forward.

The UK Government has announced a 4.1% increase in the National Living Wage from April 2026, offering an above-inflation boost for millions of low-paid workers who continue to face cost-of-living pressures. This rise comes at a time when financial pessimism remains high among low earners: only 42% of workers earning under £25,000 believe their pay is keeping up with living costs.

While the increase is widely welcomed, the report highlights growing concern about the limits of further minimum wage rises. The UK minimum wage is now among the highest in the world, and organisations such as the Resolution Foundation warn that there is limited evidence on employment effects at such high levels. With unemployment edging up and business costs rising—particularly due to higher employer National Insurance contributions and energy prices—there are fears that large future increases could dampen hiring, especially in a weak growth environment. The relatively modest 4.1% rise, the lowest in 11 years, may signal an emerging shift in policy direction.

Despite these concerns, the minimum wage is described as a major public policy success. Since its introduction over 25 years ago, and its rebranding as the National Living Wage in 2016, it has consistently raised pay without the job losses once feared.

However, the report argues that minimum wage policy alone cannot sustain living-standards growth. Long-term progress will require stronger economic growth and action on major household costs such as housing, energy, childcare, and transport.

The report also focuses on youth minimum wages, supporting the goal of eventually equalising rates across age groups.

Young people face acute challenges: falling vacancies, rising unemployment, high rates of inactivity linked to health and disability, and long-term "scarring" effects from time out of work. While higher youth wages can improve wellbeing and reduce exploitation, the report cautions that moving too quickly could reduce job opportunities for young workers. It recommends a flexible timetable and a broader remit for the Low Pay Commission to account for wider labour market conditions when setting youth wage rates.

Finally, the report stresses that raising wages is only one part of improving job quality. The new Fair Work Agency, launching in April 2026, will play a critical role in enforcing minimum wage compliance and employment rights. With an estimated 370,000 workers underpaid in 2024, stronger enforcement is essential.

Alongside this, reforms in the Employment Rights Act—such as improved protection against unfair dismissal and guaranteed hours—could significantly improve security for millions of low-paid workers, but only if enforcement is proactive and effective.

Read the full blog report HERE