Letter from Bryan Sanderson to the Rt Hon Alok Sharma MP
Source: data.gov.uk (2022-05-23)

National  Minimum Wage in 2021. New rates of the National Living Wage (NLW) and National Minimum Wage (NMW) come into force on 1 April 2021. These follow recommendations made in the autumn by the Low Pay Commission (LPC). To mark the uprating, this report looks ahead at the implications of the incoming rates and the LPC’s remit for the year ahead.

Bryan Sanderson 
Low Pay Commission 
Fleetbank House 
2-6 Salisbury Square, 
 London 
SW1A 0AA 
 
 
 
xxx@xxx.xx 
www.lowpay.gov.uk 
The Rt Hon Alok Sharma MP 
Department for Business, Energy and Industrial Strategy 
 
30 October 2020 
 
Dear Secretary of State,  
 
NATIONAL MINIMUM WAGE RATES FOR 2021 INCLUDING THE NATIONAL LIVING 
WAGE 
 
I write with the Low Pay Commission’s (LPC) recommendations for the rates of the National 
Minimum Wage (NMW) and National Living Wage (NLW) to apply from April 2021. This 
letter summarises the rationale for our recommendations, which are the agreed view of the 
whole Commission.  
We recommend that the following rates apply from 1 April 2021: 
 
 
2021 rate 
Annual increase (£) Annual increase (%) 
National Living Wage (23+) 
£8.91 
0.19 
2.2 
21-22 Year Old Rate  
£8.36 
0.16 
2.0 
18-20 Year Old Rate  
£6.56 
0.11 
1.7 
16-17 Year Old Rate  
£4.62 
0.07 
1.5 
Apprentice Rate  
£4.30 
0.15 
3.6 
Accommodation Offset  
£8.36 
0.16 
2.0 
 
 
Our remit from the Government is to recommend the rate of the NLW consistent with 
reaching the target of two-thirds of median earnings by October 2024. The remit asks us to 
“advise on any emerging risks and – if the economic evidence warrants it – recommend that 
the Government reviews its target or timeframe.” The aim of this ‘emergency brake’ is to 
ensure the lowest-paid continue to see pay rises without significant risks to their 
employment prospects.  
Following the Government’s acceptance of our advice last year, the NLW will cover 23 and 
24 year olds from April 2021. So this year we also advise on a new rate for 21-22 year olds. 
For this and the other rates of the NMW our remit is to recommend as high a rate as 
possible without damaging employment. 
Our job, therefore, is to recommend rates that work best for workers and employers in the 
context of the Covid-19 economic shock. This is no easy recommendation to make. The 

 
negotiations over the rates have been some of the most lengthy and difficult I have been 
involved with, and for good reason. Both workers and employers have been hit by the 
economic crisis and there are powerful arguments both that workers need a pay rise, and 
that employers are facing an exceptionally tough situation that raises the threat of 
unemployment. Added to this, the speed of economic change and level of uncertainty over 
the future is unprecedented. The lag between giving advice in October and the rate applying 
(April 2021) takes on far greater significance this year, and a wide range of economic 
scenarios are possible up to April 2021.  
Our standard practice in making these recommendations is to take account of the state of 
the economy, employment and unemployment levels and relevant policy changes. The bulk 
of the evidence available only goes up to August 2020, when parts of the economy had only 
just re-opened and we do not know the outcome for workers furloughed on the Coronavirus 
Job Retention Scheme (CJRS), which ends in October. Much of the activity announced in 
the Chancellor’s Plan for Jobs is still getting off the ground and subsequently announced 
policies, including the Job Support Scheme, are yet to begin.  
We also speak directly with a wide range of employers, workers and their representatives 
across the country. This is essential for understanding how employers are responding to the 
NLW and the impact it has on workers’ lives. But this year it has been more difficult. This is 
not just because of social distancing but because these groups have been extremely busy. 
Employer and worker representatives alike have been arguing for support for their 
members, working with the Government on the design of support programmes and helping 
their members navigate the support available. In some cases, the representative bodies 
themselves have been fighting for their own survival. 
Nevertheless, we spoke to a wide range of employers, workers, and their representatives in 
virtual settings. We heard of the strain on both low-paid workers and businesses who are 
struggling to survive. Many low-paid workers are key workers, particularly in retail and social 
care, and we heard about their difficulties in continuing to work through the depths of the 
pandemic. For others, including furloughed workers, we heard about the income they had 
lost, the life changes they had been forced to make, the uncertainty over whether they 
would have a job to return to. We heard examples of workers feeling forced into poorer 
terms and conditions, with their employers blaming the crisis. 
From employers we heard about the profound uncertainty which has been the norm since 
March, and the knife-edge of survival where many – particularly smaller businesses – find 
themselves. Many hospitality businesses have seen the most profitable part of the year 
wiped out. The structural shifts facing retailers have accelerated. And the funding crises in 
many publicly-funded sectors – from social care to childcare, as well as leisure and the arts – 
have only intensified. 
The economic evidence painted a similar picture. Spring saw the largest fall in GDP in 
modern history, investment fell dramatically, and recruitment collapsed. Despite this, 
employment remained high as the Government’s CJRS successfully kept millions of 
workers in jobs, albeit away from work. The CJRS largely protected incomes but pay fell for 
those whose employers did not “top up” their pay. Others still lost their jobs or hours of 
work.  
Movements in pay have a direct bearing on the NLW rate as its target is a percentage of 
average earnings. In theory, the on-course rate adjusts in response to changes in economic 

 
conditions. The logic is that if the economy booms so does pay and vice versa. But the 
sheer scale of the CJRS and its impact on pay and jobs means that measures of average 
earnings do not reflect economic conditions in the standard way.  
There are further problems with measuring what happened to hourly pay through the crisis. 
We rely on the Annual Survey of Hours and Earnings (ASHE) for understanding the impact 
of the NMW/NLW and plotting our position on the path to 2024. This survey took place at 
the end of April – the lowest point of economic activity and the peak of infections and 
furloughing of workers. The response rate was substantially lower than normal and there is 
a large group of furloughed workers whose hourly rate is unknown. This means it is not 
possible to calculate median hourly pay in April 2020. Without this we cannot tell where 
£8.72 was on the bite path to 66.7 per cent of median pay with our usual precision, and this 
complicates the question of what the next step is on that path to 2024.  
One option is to simply remove furloughed workers from our calculations on the basis that 
many would have lost their jobs and/or hours of work in the absence of the CJRS. But 
because furloughed workers tend to be low-paid, removing them actually raises average pay 
through compositional effects. This in turn increases the on-course rate for the NLW, the 
opposite of what the framework intends in an economic crisis. In short, average earnings, 
and therefore the on-course rate of the NLW, are not responding to economic conditions in 
the normal way. 
By necessity then, our approach to the NLW path is different this year. While we have 
produced an indicative path, it goes without saying that this is subject to more uncertainty 
than usual. Instead, Commissioners’ approach this year is to recommend rates that 
minimise any “significant risk” to “employment prospects” as per our remit, in a year when 
employment risks are greater than they have been in a decade. Our recommendations and 
rationale are below. 
National Living Wage  
The economy has seen the largest shock in modern history and, while growth was rapid 
over the summer, it is yet to fully recover. This means employers are in a weaker position to 
respond to NLW increases without impacts on employment. Employers respond by 
absorbing the cost and accepting lower profits, raising prices and improving 
productivity/efficiency, but the crisis has curtailed their ability to respond like this. Sales are 
down and costs are up because of social distancing, PPE and supply disruptions. 
Investment, a key ingredient in raising productivity, collapsed and many small firms are 
increasingly indebted. Vacancies fell sharply and while they too have seen rapid growth they 
are also yet to fully recover, particularly in hospitality.  
However, it is important to recognise the contribution of low-paid workers during the crisis, 
including key workers – those in care work, essential retail and other sectors. All work in 
people-facing roles, whether key workers or not, involves higher risk. Many employers 
agreed that low-paid workers deserved an increase for working through the pandemic at a 
time of intense pressure and risk for workers.  
Taking all of this into account we recommend an increase in the NLW to £8.91, which is 2.2 
per cent or 19 pence. This is lower than our best estimate of the on-course rate of £9.06, 
and therefore represents a significant adjustment in response to economic conditions. This 
increase is chosen to be modestly higher than that for prices in the year the rate applies, 

 
meaning low-paid workers’ living standards should be protected as they will continue to 
receive a real-terms pay rise. Most importantly, we do not believe this increase presents a 
significant additional risk to employment prospects, beyond the already challenging outlook. 
I have noted the difficulties in seeing ahead to just next April; looking further still would be 
unwise. For this reason, we do not recommend a change to the Government’s target of 
reaching two-thirds of median earnings by 2024, and the Commission remains fully 
committed to the goal of ending low pay. The increase we recommend is broadly in line 
with predicted wage growth, meaning progress against the Government’s ambition may 
continue. In our report we will set some indicative paths for the future course of the rate but 
these will be even more uncertain than usual. As we are still at the beginning of the 
approach to 2024, we judge that the target is still achievable and do not propose any 
change. A fuller review of the path ahead – and greater clarity on a future rate path – will 
hopefully be possible in our 2021 Report.  
National Minimum Wage 
Last year we recommended that the eligibility age for the NLW be reduced to 23 in April 
2021. This remains our position as the labour market continues to treat 23 and 24 year olds 
similarly to those aged slightly older. For example, there are similar numbers working in 
sectors affected by shutdowns, similar use of the minimum wage rates and similar rates of 
furlough and hours loss through the crisis. Employer representatives told us that while they 
were very concerned about increases to the NLW, they were far less concerned with the 
commitment to change the age eligibility.  
As for the rates themselves, young people are especially hard hit by any downturn because 
of their relative lack of experience and reliance on vacancies to find work (most adults are 
already in work when a crisis strikes). During the crisis, the younger the worker, the more 
likely they were to work in shutdown sectors such as hospitality and leisure or be 
furloughed, and less likely to have their pay topped up by their employer or work in key 
worker jobs like social care or essential retail.  
For the new 21-22 Year Old Rate we recommend a rate of £8.36, which is a 16 pence or 2 
per cent increase. We have already recommended that this group become eligible for the 
NLW in the near future. Therefore, this increase, which is slightly lower than for the NLW, 
balances the need to not allow the gap to widen too greatly with their relatively greater 
vulnerability, while still allowing these workers to receive a pay award that will protect their 
living standards. 
The evidence suggests that 18-20 and 16-17 year olds are more vulnerable still to the 
economic outlook, with more furloughed and more working in shutdown sectors. These age 
groups are also more likely to be in part-time employment and have seen these 
opportunities disappear, especially as many of these jobs are in non-supermarket retail, 
hospitality and leisure. Therefore, we recommend a lower increase to £6.56 (11 pence or 
1.7 per cent) for 18-20 year olds, broadly in line with inflation expectations. We believe 16-
17 year olds are the group most vulnerable to unemployment, and therefore recommend a 
smaller increase for this group to £4.62 (7 pence or 1.5 per cent).  
Having completed our review of the Apprentice Rate, the view of Commissioners is that it 
should be aligned with the 16-17 Year Old Rate. By alignment we mean that there will 
continue to be two separate rates, in case the fortunes of 16-17 year olds and apprentices 

 
diverge in the future, but of the same value. However, apprentices, like teenage workers, 
are also vulnerable. Our evidence base for apprentices is weaker this year, as we rely on 
ASHE for this group too. We also know that starts have been hit by the crisis. Therefore, we 
propose to align these two rates over two years, with the more cautious of the rises for the 
Apprentice Rate in this year, given the economic picture I have outlined, and the rate 
aligning with the 16-17 Year Old Rate in 2022. For next April we recommend an increase of 
15p or 3.6 per cent to £4.30.  
Last year, we achieved a longstanding aim to raise the Accommodation Offset to the level 
of the National Minimum Wage (now the 21-24 Year Old Rate). This year we recommend 
that increases in the Accommodation Offset again rise in line with that rate (the new 21-22 
Year Old Rate). That is, an increase of 16p or 2 per cent to £8.36. 
The Commission welcomes the Government's continued commitment to ending low pay. 
Achieving this in these difficult circumstances is likely to require the Government to think 
carefully about the support it provides in a range of other areas beyond the rate of the NLW. 
These include the stability and security of support provided to workers and businesses to 
help them cope with the impact of the coronavirus pandemic. The Commission has noted 
before the need for additional support for the social care sector to enable it to fulfil its 
ambitions to pay workers a decent wage. This need has only become more urgent. We also 
heard this year about the acute pressures on the childcare sector, and would highlight this 
as a further area where government funding is vital.  
Yours sincerely, 
 
Bryan Sanderson 
Chair, Low Pay Commission 
Letter copied to the Rt Hon Boris Johnson MP and Paul Scully MP