Increase in minimum wage rates announced

Danni Hewson, head of financial analysis at AJ Bell, said: “There are always two sides to every coin, and the increase to the National Living Wage that will land in workers’ pockets from April next year will help them deal with rising costs.

“But it adds to the burden on businesses still trying to find ways to mitigate the impact of the last Budget.

“At 4.1 per cent, or an extra 50 pence an hour for over 21s up to £12.71, the hike is less substantial than last year.

“However, the combined impact means the cost of hiring someone working 35 hours a week on minimum wage will have jumped by more than £2,300 in the last two years, made even worse by last year’s increase to the employer NI rate.

“The burden becomes greater for employers offering opportunities to younger workers and this additional increase means that even young people with a part-time job are more likely to hit the new National Insurance threshold – and that could impact the willingness of some businesses to offer young people their first jobs at all.

“The jobs market has come under increasing strain over the past year with the unemployment rate now at 5 per cent and the Bank of England expecting it to go even higher.

“On top of this, the prospect of the new Employment Rights Bill is also pushing businesses to think hard about whether they will be able to take on new staff in the months ahead.

“Job creation fuels growth. It means more people paying tax and less people claiming out of work benefits.

“Upping the minimum amount people are paid is an incentive to get people working, but there have to be jobs created for them to go to.

“There’s also the likelihood that increasing the cost of employing someone will force employers to pass on those costs, and that has the potential to keep inflation simmering away for at least the next year.

“There’s also an added wrinkle for students leaving university next year who will have been the first to have taken out a Plan 5 loan.

“Repayments begin once they start earning just £25,000 a year, which means even if they only earn the new minimum wage and work a 40-hour week, which is the norm in sectors like retail, they will hit the threshold to start repaying their loans.”