The Chancellor is set to pause Labour’s pledge to bring the minimum wage for 18-20-year-olds into line with their older colleagues as he struggles to find savings in next Wednesday’s Budget, business sources have claimed.
The minimum wage for young people aged 18-20 is currently set at £10.85 an hour, £1.86 below the national living wage for those aged over 21 which is £12.71 an hour.
Labour has promised to match the two wages and the Low Pay Commission, which recommends minimum wage rates, had initially targeted 2028/29 for this equalisation.
But concerns have grown within government that rapid increases in the minimum wage are costing jobs, particularly among younger workers. In addition Rachel Reeves’s hike in employer national insurance contributions in 2024 has also been blamed for making it more expensive to employ people.
It also comes against a backdrop of concern over the number of young people not in employment, education or training, which is subject to a wide-ranging review led by former minister Alan Milburn and expected to report soon after the Budget.
Pushing back the timeline
The government pledged in its 2024 manifesto to “remove discriminatory age bands, so all
adults are entitled to the same minimum wage” but did not set out a target date.
The Low Pay Commission in a letter to government last year said its remit was to “balance its ambition to lower the National Live Wage age of entitlement to 18 with its concern about current levels of youth unemployment”.
But it added that the ambition to equalise by 2028 or 2029 “will be subject to economic conditions and Government policy towards young people at the time”.
One business source said ministers were “pushing back the timeline”, adding that it was now “open-ended.”
Another said the policy was unlikely to be axed altogether, but ministers would “pause rather than scrap”.
A third business source described the move as “a sensible and pragmatic thing to do”.
There are also concerns that equalising the rates could undermine efforts to move young people from health-related benefits into work. One source warned: “You’re moving people out of inactivity and into unemployment, because no one’s hiring them still.”
In an interview with the Times on Wednesday Healey was said to be “acutely conscious”, of the “trade off” between an increasing minimum wage for young workers and employment levels.
The Conservatives have opposed equalising the youth minimum wage and say they would support moves to reduce the cost of hiring young people. They have proposed halving employer National Insurance for firms taking on under-25s.
Shadow chancellor Andrew Griffiths told The i Paper: “We have been calling on Labour to cut the cost of hiring young people for months, so if John Healey has finally taken our idea, good.”
Student loans row
Meanwhile, the Tories are also calling for action on Plan 2 student loans – amid speculation the Chancellor could reverse a freeze on the £29,385 repayment threshold for three years from April 2027, following lobbying by Education Secretary Lucy Powell.
The freeze means graduates will start repaying more of their earnings earlier than they would if the threshold rose with inflation.
The Institute for Fiscal Studies estimates the combined freeze on repayment and interest thresholds will add around £3,000 to the average lifetime repayments of borrowers who started university in 2022, with some middle-earning graduates paying around £5,000 more.
Many graduates have already seen their outstanding balances grow as interest outstrips their repayments, although those who do not clear their loans have the remaining debt written off after 30 years.
Shadow education secretary Laura Trott said Labour had worsened the deal for graduates by freezing repayment thresholds while young people faced growing difficulties finding work.
She told The i Paper: “Labour have frozen repayment thresholds, worsening the deal for graduates while they have led Britain into a youth jobs crisis. Every day, the number of young people out of work grows.”
The Conservatives are also calling for Plan 2 student loan interest to be capped at inflation, alongside their proposals to cut the cost of hiring young people.
The Treasury has been approached for comment.