Changes to the National Living Wage in the UK
The National Living Wage (NLW) has risen by more than 75% in real terms since 2009. For a growing number of employers, it is no longer a baseline impacting only a handful of roles; for many, it has become the single largest determinant of the demographic of the workforce and it impacts the lower half of the pay structure. April 2027 brings a further increase. It may also bring a structural change to the age bands, which would have a further significant impact that cannot be ignored.
Where we are now
The following rates took effect on 1 April 2026:
| Rate | From April 2026 | Increase | Uplift |
|---|---|---|---|
| National Living Wage (age 21 and over) | £12.71 | 50p | 4.1% |
| 18 to 20 NMW rate | £10.85 | 85p | 8.5% |
| 16 to 17 NMW rate | £8.00 | 45p | 6.0% |
| Apprentice NMW Rate | £8.00 | 45p | 6.0% |
The National Living Wage increase of 4.1% comfortably exceeded expected inflation over the minimum wage year, delivering a real-terms rise. The 18–20 rate rose more than twice as fast. That divergence is deliberate as the Government looks to close the gap to the 21+ rates.
Plans for April 2027
The Low Pay Commission’s central estimate for the National Living Wage from 1 April 2027 is £13.18, a 3.7% increase with a projected range of £13.02 (+2.4%) to £13.34 (+5.0%). That figure is what is required to maintain the rate at two-thirds of median hourly earnings. The Commission is clear that this is a projection rather than a forecast at this stage, and it will be revisited against the latest labour market data before recommendations are made in October.
Set against general pay budgets of around 3.5% for 2027, the central estimate looks broadly aligned. However, it should be noted that, in recent years, the Commission has tended to settle above its own initial estimate. Planning at closer 4% may therefore be wise at this stage.
The move to a single adult rate
The Government remains committed to removing the age bands for adults under 21, and the March 2026 remit gave the Commission full flexibility on the pace of alignment. The Commission’s proposed pathway is to reduce NLW eligibility to age 20 in 2027, on the evidence that the labour market treats 20-year-olds differently from 18- and 19-year-olds, and that around 70% of 20-year-olds are already paid at or above the National Living Wage. 18- and 19-year-olds would then be consolidated into the NLW together, with the NLW age expected to be lowered to 18 in 2028 or 2029. If the changes land in April 2027 as expected, the NLW rate for 20-year-olds would rise from £10.85 to approximately £13.18, an increase of around 21% in a single year. The Commission has said openly that it chose to backload the increases needed to reach alignment, having declined a rise of more than 25% for that cohort in 2026. This deferred cost has yet to impact employers, and 2027 looks set to be when this happens.
The direction of travel is already visible: by April 2026 the 18–20 rate had risen 26.2% since 2024, against 11.1% for the adult National Living Wage over the same period.
The timetable
| When | What happens |
|---|---|
| 26 June 2026 | LPC consultation closed, covering both the 2027 rate and the pathway to a single adult rate |
| October 2026 | LPC submits final recommendations to Government |
| October/ November 2026 | Rates confirmed (note: Government has accepted LPC recommendations in full every year) |
| 1 April 2027 | New rates take effect, 20-year-olds expected to become eligible for the NLW |
| 2028 or 2029 | Proposed alignment of the NLW age at 18, subject to economic conditions |
What it means for employers
For most professional and technical populations, the statutory NLW floor remains remote. For sectors that employ a younger demographic (e.g. retail, hospitality, care, leisure and logistics), it looks like becoming a binding constraint on the entire reward structure, and the exposure runs well beyond the affected cohort. Where the NLW sets the bottom of a range, the range moves regardless of the employer context. Successive years of NLW increases outpacing general settlements have flattened differentials into supervisory layers to the point that any further steps of comparable size will erode any remaining gap. The cost of the uplift itself is straightforward to calculate. The cost of restoring the structure to avoid compression and maintain the supervisory differentials is not, and it is a cost that needs to be budgeted for. There is a second dimension that did not previously apply. As pay transparency obligations tighten, the reasoning behind differentials moves from internal judgement to disclosable position. Compression that could once be tolerated quietly becomes something an employer has to be able to explain.
Ellason commentary
Most employers model the impact of the NLW changes and stop there, but this understates the cost and real understanding often arrives too late to act on. Five things are worth doing before the Budget:
• Model the scenario, not the rate. Run two cases, not one. Model the NLW at 4% with youth rates up 8-10% and separately model the NLW at 4% with 20-year-olds moved onto it. For a workforce with a young population, the difference between those two scenarios could be significant.
• Cost the compression, not just the floor. The direct uplift is the easy part. The cost of restoring differentials into team leader and supervisory roles is larger, rarely provided for, and is what determines whether the structure remains credible after the April increase.
• Audit age-referenced pay practice now. Any rule that references age (rates, progression steps, premia, shift arrangements) should be reviewed before the pay rates converge. Practice that was straightforward while it mirrored statutory age bands becomes considerably harder to justify once the statutory distinction disappears.
• Fix the architecture before the rate lands. If the bottom of the structure is being set by legislation rather than by design, a larger budget will not fix it. What is needed is a grading and pay range framework that holds its shape when the floor moves, and that can be explained, in a transparency regime that increasingly requires exactly that.
For more information, please contact your regular Ellason contact, or email us at: info@ellasonllp.com