27th October 2026
Higher wages for the lowest-paid may leave experienced staff asking an awkward question: why is the gap between their pay and that of a new recruit getting smaller?
The Government's expected increase in the National Living Wage and National Minimum Wage in April 2027 could have consequences well beyond those workers who receive the statutory minimum.
While much of the debate focuses on how much the lowest-paid will gain, employers may also face demands for increases from staff who already earn more than the legal minimum. Experienced workers, supervisors and team leaders may argue that their additional skills, responsibilities and years of service should be reflected in their pay.
This creates a difficult balancing act for employers. They must meet the cost of higher minimum wages while deciding whether they can afford to increase pay throughout their workforce.
The problem of wage compression
The issue is known as wage compression. It occurs when increases at the bottom of the pay scale narrow the difference between the lowest-paid employees and those earning more.
Suppose a business currently pays an entry-level employee £12.71 an hour and an experienced worker £13.50. If the minimum wage rises to £13.20, the difference falls from 79p to just 30p an hour.
The experienced employee might reasonably ask why several years of experience, additional knowledge or greater responsibility now attract such a small financial reward.
The problem can be even more pronounced when a supervisor is responsible for organising a team, dealing with customers or resolving problems but earns only slightly more than the people they supervise.
Some employers may decide that maintaining a sensible gap between pay grades is important for staff morale and recruitment. Others may conclude that they cannot afford to increase everyone's wages.
Research by the Low Pay Commission has identified the narrowing of pay differences as one of the consequences of successive minimum-wage increases. Employers have reported difficulties maintaining differentials between junior staff and supervisors, as well as concerns about encouraging workers to progress into more responsible positions.
are the trade unions saying?]/b]
Trade unions have generally supported higher minimum wages as a way of improving living standards, reducing low pay and giving workers a greater share of the benefits of economic growth.
The Trades Union Congress has also argued for an end to lower statutory minimum-wage rates for younger adults. Its position is that age should not determine whether someone receives a fair rate for their work.
However, the unions' wider concern is not confined to the lowest-paid. If an increase in the legal minimum leaves experienced workers little better off than new recruits, unions can argue that pay negotiations should take account of the whole pay structure.
This can become particularly important in workplaces where pay grades have been established through collective bargaining. A union negotiating an annual pay settlement may seek increases across several grades to preserve the differences between entry-level work, skilled jobs and supervisory responsibilities.
There is a practical difficulty, however. A union can negotiate and campaign for higher pay, but an increase in the statutory minimum does not automatically give every other employee a legal right to a pay rise. Whether workers receive one will depend on their employment contracts, collective agreements and the outcome of negotiations.
[b]Will employers be able to afford increases for everyone?]/b]
For some employers, the answer may be yes. Businesses with growing sales, healthy profits or scope to improve productivity may be able to increase wages across their workforce.
[b]Others may face much tighter constraints
Pubs, hotels, restaurants, shops and care providers employ many people in relatively low-paid jobs. Higher wages can increase their costs at a time when they are also dealing with energy bills, rents, business rates, employer National Insurance and other expenses.
Employers have several possible responses. They can accept lower profits, raise prices, reorganise work, invest in technology or reduce recruitment. Some may limit increases for staff already earning above the minimum, even if this means narrowing the gap between pay grades.
None of these outcomes is inevitable. The impact will vary according to the business, the strength of demand, the availability of workers and the scope for efficiency savings.
But the possibility of additional wage demands means the cost of a minimum-wage increase cannot always be measured simply by multiplying the increase by the number of employees currently receiving the minimum rate.
The public-sector challenge
The issue is especially important for councils, the NHS and publicly funded care services.
If the statutory minimum rises, contractors and service providers may face higher employment costs. At the same time, experienced employees may expect pay awards that preserve the differences between their roles and those of newer staff.
Councils and public bodies must then find a way to fund the additional costs. If budgets do not increase sufficiently, money may have to be diverted from other activities, savings may be required, or services may come under greater pressure.
In social care, for example, a provider might need to increase the pay of care assistants to meet the minimum wage while also maintaining appropriate differentials for senior care workers who have additional duties.
For rural areas such as Caithness, these pressures can be particularly difficult for smaller providers operating with limited financial flexibility. Recruiting and retaining experienced staff is important, but the money available to pay them may be constrained by the funding arrangements under which services are delivered.
The same underlying issue can affect local businesses. If a shop increases the wages of its newest employees but freezes the pay of experienced staff, it may find it harder to retain those workers.
Does a higher minimum wage cause inflation?
There is a possible knock-on effect on prices, but it should not be exaggerated.
If businesses pass some of their additional wage costs on to customers, prices may rise. This is most relevant in sectors where wages account for a large proportion of total costs and where there is limited scope to improve productivity.
However, higher wages can also increase household spending power. Workers who receive more money may spend some of it in local shops, cafés and other businesses, supporting demand.
The overall effect depends on how much employers pass on through prices, how much they absorb through profits or efficiency savings, and how consumers respond.
It would therefore be wrong to assume that every increase in the minimum wage produces an equivalent increase in inflation. Equally, it would be unrealistic to assume that employers can always absorb higher wage bills without making changes elsewhere.
How should the Government approach the problem?
The Government faces two related questions. How far should the minimum wage rise to improve living standards? And how can it avoid creating a pay structure in which experience and responsibility bring progressively smaller financial rewards?
One approach would be to continue increasing the minimum wage while recognising that employers, particularly those delivering public services, may need adequate funding to meet the resulting costs.
Employers and unions could also review pay structures to ensure that differences between grades remain meaningful. Training, progression and the development of skills may help justify higher pay for more responsible roles, although this still depends on employers having the resources to pay it.
The Low Pay Commission's evidence is important here because it helps distinguish the effects that have actually been observed from predictions about what might happen next.
The Government must also consider the position of young workers. Raising their minimum rate may improve their income, but ministers will want to understand whether the changes affect opportunities to obtain a first job. Equally, keeping lower rates for young adults does not by itself solve the wider problem of limited employment opportunities.
The debate extends beyond the minimum wage
The minimum wage sets a legal floor, but it does not determine what a fair pay structure should look like throughout an organisation.
Workers earning just above the minimum may see their advantage over new recruits shrink. Experienced employees may ask for increases, and unions may seek to protect differences between grades. Employers, meanwhile, must decide how much of the additional cost they can afford and how much they can pass on.
For Scotland's businesses and public services, the consequences could extend well beyond the employees directly affected by the statutory increase.
The Government can raise the minimum wage by law, but it cannot settle every pay dispute that follows. The real test will be whether higher wages improve living standards while allowing employers to recruit, retain experienced staff and maintain the services on which communities depend.