Chancellor John Healey outside No 11 before the Budget (Image: Getty)
Chancellor John Healey just announced a pay rise of up to £1,011 for two million workers. In his Budget statement, he confirmed plans to increase both the National Living Wage and the Minimum Wage by 3.9%. And that means many workers across the country will get a significant pay rise.
The National Living Wage is for people aged 21 and over. It is currently £12.71 per hour, and will now go up in April 2027 following the Chancellor’s announcement. According to the Treasury, many full-time staff work 170 hours each month on average. That would mean someone on the Living Wage is paid £2,160.70 each month, or £25,928.40 per year. But increasing that by 3.9% means a pay rise of £1,011.21.
And someone aged 18 to 20 is entitled to the minimum wage of £10.85 per hour, or £22,134 each year if they work full-time. They will get a pay rise of £863.23.
About two million workers are currently paid either the Living Wage or Minimum Wage, and they are set to benefit from the change.
The Chancellor has ended the policy of his predecessor, Rachel Reeves, who pushed up the minimum wage for young workers faster than the living wage for people aged 21 and over. She wanted to give younger workers a pay rise, but business leaders warned that she was making it hard to employ young staff. Mr Healey’s policy is a major U-turn.
Delivering his Budget in Parliament, Mr Healey said: “To help with the weekly shop, I am suspending tariffs on over 100 supermarket products to keep prices down.
“For pensioners, I am delivering the new pension tax allowance – so that pensioners with income up to the value of the full new state pension will not pay income tax in this Parliament.
“For ex-mineworkers, I’m guaranteeing that every penny of the pension fund surplus now goes to miners. I know the job’s not finished and I will go on to ensure the full transfer of the guarantor’s fund.
“For carers, I am getting rid of the cliff edge on earnings, so that people don’t lose their entire carer’s allowance when they earn a penny over the threshold.
“And for 2.3million of our lowest-paid workers, I am increasing both the National Minimum Wage and the National Living Wage by 3.9%.”
Chancellor John Healey has announced a significant pay rise for millions of Britain’s lowest-paid workers as part of his first Budget, offering financial relief to people struggling with the rising cost of living. Under the new measures, the National Living Wage and National Minimum Wage will increase by 3.9 per cent from April 2027. The announcement is expected to benefit approximately 2.3 million workers across the United Kingdom, with some full-time employees receiving an annual pay increase of more than £1,000. The decision has attracted considerable attention because millions of households continue to face financial pressure from higher food prices, energy bills, housing costs and other essential expenses.
The most significant change concerns the National Living Wage, which applies to workers aged 21 and over. The current hourly rate of £12.71 will increase to £13.21 from April 2027. For someone working approximately 170 hours each month, this represents a substantial improvement in annual earnings. Based on the government’s calculations, a full-time worker could receive an additional £1,011.21 over the course of a year. This increase is expected to provide greater financial security for employees working in sectors such as retail, hospitality, cleaning, social care and other service industries.
Younger workers will also benefit from the announcement. Employees aged between 18 and 20 currently receive a minimum hourly wage of £10.85. Under the new arrangements, this will increase to £11.27 an hour. For someone working full-time, the increase could provide approximately £863 in additional annual earnings. The government believes that raising wages across different age groups will help improve living standards and ensure that workers receive fairer financial rewards for their employment.
Announcing the measures in Parliament on 28 October 2026, Healey said that the increase would support millions of the country’s lowest-paid employees. He explained that the government wanted to help working people manage everyday expenses while creating a stronger economic foundation for the future. The Chancellor also emphasised that the Budget was designed to provide immediate assistance to households and businesses while encouraging long-term economic growth.
The pay rise is particularly important because the cost of living has become one of the biggest concerns for British families. Although inflation has changed over time, many households continue to experience the effects of previous price increases. Food, electricity, gas, transport and accommodation remain significant expenses, especially for people earning relatively low salaries. Workers who depend entirely on hourly wages often have limited opportunities to build savings or deal with unexpected financial emergencies. Therefore, even a relatively modest increase in hourly pay can make a meaningful difference to their monthly budgets.
For example, an employee working full-time on the new National Living Wage will receive approximately 50 pence more for every hour worked. Over a typical working week, this additional income can gradually accumulate into a significant annual amount. Workers may use the extra money to pay household bills, purchase essential groceries, cover transport costs or reduce outstanding debts. For families with children, additional earnings could also help with school expenses, clothing and other everyday necessities.
Another important aspect of the announcement is the government’s decision to apply the same percentage increase to both the National Living Wage and the minimum wage for younger employees. In recent years, younger workers received comparatively larger increases as the previous government attempted to narrow the difference between age-related wage rates. However, some business organisations argued that the faster increases had made it more expensive to employ younger people, particularly in sectors where profit margins were relatively small.
Healey’s decision represents a change in the government’s approach to minimum wage policy. The Labour government has adjusted the guidance given to the Low Pay Commission, allowing it to consider employment conditions and the wider economic situation when recommending future wage rates. This means that decisions about minimum pay will need to consider not only workers’ living standards but also the ability of businesses to create and maintain employment opportunities.
Nevertheless, the announcement has raised questions about the financial impact on employers. Businesses operating in retail, hospitality, restaurants and social care often employ large numbers of people on minimum or relatively low wages. Increasing hourly pay can improve employees’ financial circumstances, but it also increases operating costs for companies. Some employers may respond by raising prices, reducing recruitment, changing working hours or investing in automation. Smaller businesses may find these adjustments particularly difficult because they have fewer financial resources than larger companies.
Business representatives have repeatedly warned that higher wages, combined with increased National Insurance contributions and other operating expenses, can place additional pressure on employers. The hospitality industry, for example, has expressed concerns about rising employment costs at a time when restaurants, hotels and pubs are already dealing with expensive energy, ingredients and commercial rents. The government therefore faces the challenge of improving workers’ incomes without placing excessive pressure on the businesses that provide their jobs.
Despite these concerns, supporters of higher minimum wages argue that better pay can also benefit businesses. Employees who receive fair compensation may experience greater job satisfaction, improved motivation and stronger loyalty to their employers. Higher incomes can also increase consumer spending because workers have more money available to purchase goods and services. This additional spending may support local shops, restaurants and other businesses, helping economic activity in communities across the country.
The announcement is also part of a wider package of measures designed to reduce financial pressure on British households. In the same Budget, Healey introduced a £100 household energy payment for eligible households in England and extended the temporary reduction in VAT on electricity bills until July 2027. The government also announced changes to gas standing charges, with the aim of reducing fixed costs for many households. These measures demonstrate that the Chancellor is attempting to address several different sources of financial pressure rather than relying exclusively on wage increases.
However, some campaigners argue that higher minimum wages alone cannot solve the wider cost-of-living crisis. Housing affordability, childcare expenses, transport costs and energy prices continue to affect household finances. For workers living in expensive areas, even an annual pay increase of approximately £1,000 may not be sufficient to create meaningful financial stability. Consequently, wage policies need to be accompanied by improvements in housing, public transport, healthcare and other essential services.
There is also an important question about whether wage increases will keep pace with inflation in the coming years. If the prices of essential goods and services rise faster than workers’ incomes, the real value of the pay increase could gradually disappear. This is why the government must continue monitoring inflation, productivity and average earnings when reviewing minimum wage rates. The Low Pay Commission will remain an important part of this process because it provides recommendations based on economic evidence and labour market conditions.
From a broader economic perspective, increasing the minimum wage can help reduce income inequality and improve financial opportunities for people in lower-paid occupations. Many essential workers provide services that society depends on every day, yet their earnings have not always been sufficient to cover basic living expenses comfortably. Ensuring that these employees receive fairer wages is therefore an important issue for social and economic policy.
At the same time, policymakers must recognise that businesses need a stable environment in which to operate. Employers require predictable wage policies so they can plan recruitment, investment and long-term budgets. Sudden or excessive increases could create difficulties for some companies, particularly small businesses. A balanced approach should therefore consider the needs of employees alongside the economic conditions facing employers.
Ultimately, the success of the new wage policy will depend on how much it improves people’s real living standards. The government will need to monitor whether workers are genuinely better off after accounting for inflation, taxes and rising household expenses. It will also need to assess whether businesses can absorb the higher wage costs without significantly reducing employment opportunities.
In conclusion, John Healey’s announcement of a 3.9 per cent increase in the National Living Wage and National Minimum Wage represents an important development for approximately 2.3 million workers in Britain. From April 2027, employees aged 21 and over will receive £13.21 an hour, while those aged 18 to 20 will receive £11.27. For some full-time workers, the increase could mean more than £1,000 in additional annual earnings. Although the policy offers welcome financial assistance to low-paid employees, its wider effects on businesses, inflation and employment will need careful monitoring. The government must ensure that higher wages translate into genuine improvements in living standards while maintaining an economic environment in which businesses can continue to grow and create jobs.