The UK Treasury said on Monday that the National Living Wage is set to increase from £8.91 to £9.50 (from $12.27 to $13.08) an hour as part of the autumn Budget, but critics said that much of the raise will be eaten up by rapidly rising inflation.
The 59-pence rise means a full-time worker on the living wage would see their annual income rise by more than £1,000 ($1,377).
Chancellor Rishi Sunak said: “This is a government that is on the side of working people. This wage boost ensures we’re making work pay and keeps us on track to meet our target to end low pay by the end of this Parliament.”
The National Living Wage was introduced in 2016 and sets the minimum hourly pay a person over the age of 23 can earn when working.
But amid rising inflation, critics have questioned whether the hike is enough to support families facing a cost-of-living crisis.
The Resolution Foundation, a think tank focused on improving the living standards of those on low-to-middle incomes, said it is “nonsense” to argue that the raise will make full-time workers £1,000 better off because “fast” rising inflation will eat up two-thirds of the raise.
Torsten Bell, the chief executive of the think tank, also warned that firms that have their “profits squeezed” and customers facing higher prices will lose out because of the hike.
The Institute for Fiscal Studies think tank also said the living wage increase will be blunted by inflation hikes.
The main opposition Labour Party said the raise was an “underwhelming offer.”
Bridget Phillipson, Labour’s shadow chief secretary to the Treasury, said, “Much of it will be swallowed up by the government’s tax rises, Universal Credit cuts, and failure to get a grip on energy bills.”
Unions have called for a bigger increase to the National Living Wage. Frances O’Grady, general secretary of the TUC union, said the government “must set its sights higher” and raise the minimum wage to £10 ($11.86).
But the business community said that higher wage bills, combined with the tax rises announced earlier, will drive many small firms into bankruptcy.
The Federation of Small Businesses said that the “larger-than-expected” minimum wage increases “must be matched by support for those who will struggle to afford to maintain jobs—these are the smallest employers, up and down the country.”
Mike Cherry, national chair of the group, said: “The Treasury must play its part to secure wage increases—the taxman will gain almost £500 for every worker whose pay increases to £9.50 an hour.”
Without more government support, “the combination in April of higher wage bills and higher tax bills will see many more than the forecast of 50,000 people added to unemployment queues,” he said.
PA contributed to this report.