Low Pay Commission 2020 summary of findings
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.

Low Pay Commission
2020 Report
Summary of findings
November 2020

Introduction
The Low Pay Commission
The Low Pay Commission (LPC) is an independent public body
that advises the Government each year on the National
Minimum Wage (NMW) and National Living Wage (NLW). The
LPC is a social partnership body, made up of nine
Commissioners; three from employer backgrounds, three
from employee representative backgrounds, and three
independents, including the Chair. Every year since its first
report in 1998, Commissioners have unanimously agreed the
LPC’s recommendations to the Government.
We met in October 2020 to agree rate recommendations for
April 2021 and submitted our advice to the Government on 30
October 2020 – one day before the announcement of a
second national lockdown and the extension of the
Coronavirus Job Retention Scheme (CJRS). This short report
summarises the main evidence underpinning our advice, and
should be read in conjunction with our letter to Government,
which explains the rationale for each rate recommendation.
Our full report, which sets out our evidence base in full, will
be laid before Parliament and published later this year.
Our recommendations were accepted in full by the
Government and will come into effect from 1 April 2021. The
NMW and NLW rates effective from April 2021 are shown
opposite.
Read our letter to the Government here.
2
National Minimum Wage rates effective from 1 April 2021
Contact us
www.lowpay.gov.uk
@lpcminimumwage
xx-xxxx-xxxx
LPC blog
£8.91
£8.36
£6.56
£4.62
£4.30
£8.36
National Living Wage
21-22 Year Old Rate
18-20 Year Old Rate
16-17 Year Old Rate
Apprentice Rate
Accommodation Offset

Our remit and approach in 2020
The National Living Wage
The NLW was introduced in April 2016, as the statutory
minimum wage for workers aged 25 and over. For the first
time, the NLW introduced a target for increases in the
minimum wage. The LPC was asked to make
recommendations to reach 60 per cent of median earnings by
2020, on the condition of sustained economic growth.
This year, the Government set a new target for the NLW, to
reach two-thirds of median earnings by 2024. In addition, the
age threshold for the rate will come down to 23 next year and
to 21 by 2024. This follows recommendations we made last
year in our review of the NMW youth rates.
In setting our remit, the Government made clear we should
take economic conditions into account and – if the evidence
warranted it – could recommend that the Government
reviewed its target or time-frame. This mechanism was
referred to as an ‘emergency brake’.
Other National Minimum Wage Rates
For other rates, we were asked to recommend rates as high
as possible without damaging the employment prospects of
each group.
Read the Government’s remit to us for 2020 here.
Our evidence base and approach
As every year, our recommendations are based on a variety of
sources of evidence, including:
•
A written public consultation exercise, held from March
to June.
•
Two and a half days of oral evidence sessions with 26
organisations representing workers and employers.
•
A range of independent research projects.
•
Comprehensive analysis of a range of economic and
labour market data.
•
Regular meetings with interested stakeholders.
Inevitably, Covid-19 has disrupted our work this year. This has
affected our usual work in two important ways:
•
We have not been able to carry out our usual regional
visits or meet stakeholders face to face. While we have
mitigated this with virtual meetings, there has been less
first-hand, local experience. In addition, groups who give
us evidence have themselves been heavily occupied with
the effects of the pandemic and the needs of their
members.
•
The data sources we rely on have been heavily affected
by the pandemic – in particular, the Annual Survey of
Hours and Earnings (ASHE), our key source for assessing
the impact of the minimum wage. Large-scale furloughing
of workers mean there is a significant group of workers
whose hourly pay is unknown. This has changed the
analysis we are able to carry out and prevented us
assessing the effects of the NMW in the usual ways.
3

Economic context
Our remit asks us to take economic conditions into account,
and after a period of relative stability, this year has been
extremely turbulent. The onset of Covid-19 saw the UK’s GDP
decline sharply by 25 per cent between February and April.
While the pandemic affected every country, among OECD
members the UK suffered one of the largest falls in GDP. Its
death rate from the first wave of Covid-19 was also one of the
highest in the world.
At the time of making our recommendations, we had GDP
data up to August 2020. The initial easing of lockdown
measures saw strong growth in June and July, with retail
sales returning to their pre-pandemic levels. But GDP growth
weakened to 2.1 per cent in August, and that growth was
mainly driven by the hospitality sector and the temporary
impact of the Eat Out to Help Out scheme. Although GDP had
rebounded by 22 per cent by August, it was still 9.2 per cent
lower than it had been in February, the same level of output as
at the beginning of 2014.
To put that in historical context, the largest previous fall in
GDP in any recession since the Second World War was 5.9
per cent (during the financial crisis of 2008-9).
GDP growth since the financial crisis has been much weaker
on average than before it but, as job creation has been much
greater, the UK’s productivity performance has been weak.
Even before the onset of the pandemic, productivity on any
measure (per job, per worker or per hour) was only 2-3 per
cent higher than in 2008. There was a sharp decline in all
three productivity measures in the second quarter of 2020 as
the Government reacted to control the virus and supported
jobs – output fell more deeply than hours, jobs or workers.
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Q21
GDP index (quarter before start of
recession=100)
Now
Late 2000s
Early 1990s
Early 1980s
Mid-1970s
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-30
-25
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-5
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2019 JAN
2019 FEB
2019 MAR
2019 APR
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2019 AUG
2019 SEP
2019 OCT
2019 NOV
2019 DEC
2020 JAN
2020 FEB
2020 MAR
2020 APR
2020 MAY
2020 JUN
2020 JUL
2020 AUG
Change on a month ago (per cent))
Change in monthly GDP on a month ago
Monthly GDP index (February 2020=100)
Monthly GDP index (February 2020=100)
Monthly GDP, UK, 2019-20
Comparison of post-war UK recessions

Business conditions
Economic activity picked up over the summer as businesses
were able to reopen, but at the time of our recommendations
there was still wide sectoral variation in business conditions,
with low-paying sectors at particular risk of insolvency.
By the start of October, large numbers of businesses had
reopened since the first national lockdown, with 86 per cent
of firms trading, up from 66 per cent in mid-June. Just under a
quarter of firms said turnover had decreased by over 20 per
cent compared to normal for the time of year, compared to
over 40 per cent of firms in June. The ability to reopen and
bring in revenues varied greatly by sector. The leisure sector
faced the greatest difficulties. Businesses in the arts and
entertainment or hospitality industries were more likely to
have lower turnover, or to still have workers furloughed.
Businesses’ cash reserves fell and risk of insolvency rose
compared to the pre-pandemic period. The levels of debt
taken on by SMEs rose significantly, as firms made use of
Government-backed loan schemes.
The bottom chart on the right shows how low-paying sectors
tend to have a high share of firms with low cash reserves and
a higher risk of insolvency. Hospitality has the highest
proportion of firms with less than three months of cash
reserves (40 per cent) and the highest share with a moderate
or severe risk of insolvency (38 per cent). Almost a quarter of
workers in hospitality were furloughed at the start of October,
according to the Business Impacts of Coronavirus Survey
produced by the Office for National Statistics.
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20
40
60
80
100
Jun 14
Jun 21
Jun 28
Jul 05
Jul 12
Jul 19
Jul 26
Aug 02
Aug 09
Aug 16
Aug 23
Aug 30
Sep 06
Sep 13
Sep 20
Sep 27
Oct 04
Share of firms/employees (per cent)
Turnover decreased >20%
Currently trading
5
Mining and Quarrying
Manufacturing
Construction
Wholesale and Retail Trade
Transportation and Storage
Hospitality
Information and Communication
Real Estate Activities
Professional and Scientific
Administrative and
Support Service Activities
Education
Human Health and
Social Work
Activities
Leisure
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Share of firms with <3mths cash
reserves (per cent)
Share of firms with moderate or severe risk of insolvency (per cent)
25-30%
0-3%
Size of bubble
represents the share
of workers furloughed
Share of firms currently trading, with decreased revenue and share
of employees furloughed, UK, June-October 2020
Share of firms with low cash reserves and at risk of insolvency,
UK, October 2020

The impact of the Coronavirus Job Retention
Scheme
The extent of the economic shock led to large-scale
intervention by the Government to protect jobs and incomes,
via the Coronavirus Job Retention Scheme (CJRS). The CJRS
enabled employers to furlough their workforce, with the
Government paying 80 per cent of their usual pay. From July
onwards, employers were able to bring furloughed workers
back for reduced hours. From August onwards, employers
were asked to make a contribution to the furloughed worker’s
wage costs, which increased month by month.
At its peak in May, almost 9 million workers were furloughed
under the CJRS, with the Government paying the wages of
over a quarter of the workforce. The scheme was still
supporting around 3.3 million jobs by the end of August. This
included around 1 million workers who had returned to work
part-time.
The evidence so far suggests that the scheme was successful
in protecting workers from redundancy and keeping them with
their original employer. As the lower chart on the right shows,
in August, 90 per cent of workers who had returned from
furlough between March and June – some 4.3 million
individuals – were still employed by the same firm.
At the time we made our recommendations to the
Government, the CJRS was expected to close at the end of
October, to be replaced by a distinct Job Support Scheme.
The announcement on 31st October of a second national
lockdown (beginning on 5th November), however, led to an
extension of the CJRS until the end of March.
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10
Mar 01
Mar 15
Mar 29
Apr 12
Apr 26
May 10
May 24
Jun 07
Jun 21
Jul 05
Jul 19
Aug 02
Aug 16
Aug 30
Number of employments
furloughed (millions)
Type of furlough unknown
Employments partially furloughed
Employments fully furloughed
6
14k
400k
1.4m
2.5m
4.3m
0%
20%
40%
60%
80%
100%
March
April
May
June
Total
Proportion of employments no
longer furloughed still on payroll in
August (per cent)
Month last furloughed
Number of employments furloughed via the CJRS, UK,
March-August 2020
Share of employments no longer furloughed and still on payroll,
UK, August 2020

The Coronavirus Job Retention Scheme and
employment – 1
In normal circumstances we would expect an economic shock
of this magnitude to have a huge impact on employment. For
example, Andy Haldane, chief economist at the Bank of
England, estimates that a 25 per cent reduction in GDP could
increase unemployment to around 5 million1. The fact that we
have not seen a fall of this magnitude shows the impact of the
CJRS and other support measures in protecting jobs.
While different data sources give different pictures, most still
tell us that employment has fallen since February, the month
prior to lockdown. The chart on the right compares the main
data sources on overall employment. The levels shown differ
as they are counting slightly different things and come from
different data sources.
Labour Force Survey (LFS) total employment counts the
number of individuals either employed or self-employed. This
fell by 480,000 (or 1.5 per cent) between February and
August, driven by falls in self-employment (around 470,000 in
total) and partly offset by rising employee numbers. The self-
employed were not protected by the CJRS but could receive
support via the Self Employment Income Support Scheme
(SEISS).
Employee jobs counts the total number of employee jobs
(individuals can have more than one job). These fell 200,000
between March and June.
HMRC’s Real Time Information (RTI) shows the number of
individuals with at least one PAYE job. In contrast to the LFS,
this registered a sharp drop in April, and has fallen 685,000
since February. We explore why HMRC’s count of payrolled
workers may differ from the LFS’s count of employees on the
next page.
7
Data source
Change since Feb 2020
LFS total employment
-480k (Feb-Aug)
Employee jobs
-200k (Mar-Jun)
RTI payrolled employees
-685k (Feb-Sep)
LFS employees
+40k (Feb-Aug)
Employment levels, UK, September 2017-September 2020
26
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31
32
33
34
2017 Sep
2017 Dec
2018 Mar
2018 Jun
2018 Sep
2018 Dec
2019 Mar
2019 Jun
2019 Sep
2019 Dec
2020 Mar
2020 Jun
2020 Sep
Employment (millions)
RTI employees
LFS employment
LFS employees
Employee jobs
1“Avoiding Economic Anxiety”, speech by Andy Haldane, Chief Economist and Member of the Monetary Policy Committee (MPC),
30 September 2020

The Coronavirus Job Retention Scheme and
employment – 2
8
The chart above shows the distribution of the employment
changes in the LFS from February to August. As set out on
the previous page, the largest overall decline was from self-
employed full-time workers which fell by 340,000. Among
employees, losses were concentrated in part-time jobs which
dropped by 240,000. However these were more than offset
by growth in full-time employment which increased by
280,000 over the period.
There was a marked difference between the genders, with
changes to self-employment concentrated among men and
the loss of part-time employment affecting women much
more.
Change in employment by gender and employment type,
LFS, UK, February-August 2020
The chart above shows the number of individuals who stated in
the LFS that they were still employed but that their job was on
hold due to Covid-19 and they were receiving no pay. This
group could include, for example, informal bar staff, who were
not furloughed but still believed they would have a job to return
to once the lockdown period ended. Low-paying occupations
made up a disproportionate share of these workers.
In April this ‘loosely attached’ group totalled 680,000. The size
of the group helps explain why we did not see anything like the
same drop in the number of LFS employees post-March as
were observed in the RTI data.
Number of employees whose job was ‘on hold’ without pay,
LFS, UK, April-August 2020
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April
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Low-paying
occupations
Non low-paying
occupations
Total
Number of employees (thousands)
-800
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0
200
400
Men
Women
All
Change in employment Feb-Aug (thousands)
Employees part-time
Employees full-time
Self-employed part-time
Self-employed full-time
Total employed

Latest labour market developments
The labour market was in an uncertain place as we made our
recommendations at the end of October, with some signs of
rebound in the autumn but other indicators tending towards
pessimism.
The number of vacancies advertised fell by more than half in
the immediate lockdown period. As the economy reopened
over the summer, vacancies grew and continued to do so as
we moved into the autumn, but remained below pre-Covid
levels. Whether this continues will be a key measure of the
labour market’s ability to recover.
Another proxy for loss of work or pay is the claimant count of
those claiming benefits. This jumped at the start of lockdown,
reaching its highest level since 1994. Although the overall
count remained high into the autumn, the numbers of new
claimants of Universal Credit had fallen back to their pre-
pandemic levels.
Against this, however, were signs of damage already done.
Unemployment and inactivity rates were increasing for all
groups, but especially for 18-24 year olds, where they reached
their highest level for five years. Data tracking HR1
redundancy notices showed the largest quarterly rise on
record up to May. Even if notices do not always feed into
actual redundancies, a growing number of jobs were clearly at
risk. Indeed, redundancy data in August 2020 showed the
largest 3-month increase since records began in 1995 as
numbers doubled to 227,000.
9
Job vacancies, UK, January-November 2020
0
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2008 Aug
2009 Aug
2010 Aug
2011 Aug
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2020 Aug
Number of redundancies (thousands)
Redundancies, UK, 2008-2020
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Jan 2019
Mar 2019
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Nov 2019
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Jul 2020
Sep 2020
Nov 2020
Number of vacancies (thousands)
Adzuna
ONS

Working hours during the pandemic
Business closures and the furloughing of workers led to an
unprecedented collapse in the number of hours worked
across the economy, which persisted into the summer. This
fall in hours – up to 20 per cent at its lowest – far exceeded
the 2008 financial crisis, when total hours fell by a maximum
of 4 per cent. The fall in hours was economy-wide, but the
recovery since has been slower for low-paid workers.
The charts on the right show how average hours worked
changed for those aged 16 and over in low-paying and non
low-paying occupations. In low-paying occupations, average
weekly hours fell from 25 to 17 as the national lockdown was
introduced. Hours recovered slowly through the spring and
into summer, peaking at 23 hours in mid-August, still well
below expected hours for this time of year. In non low-paying
occupations, where hours worked tend to be higher on
average, we saw a similar drop in the number of hours from
32 to 24. The recovery however was quicker, helped by the
fact that workers in these occupations were more likely to be
able to work from home. Hours worked appeared to return
closer to average by the start of August.
In ‘normal’ times we would expect a fall in hours for non low-
paid workers during the summer months due to holidays. That
fall has not been apparent this year, which has resulted in a
narrowing of the gap in hours. This could be because the
increase in the number of hours worked has been offset by
the typical increase in people taking leave. We see less of this
effect for those working in low-paying occupations as their
hours tend not to vary to the same extent during holiday
periods.
10
Mean number of hours worked in reference week, low-paying
occupations, workers aged 16+, UK, 2020
Mean number of hours worked in reference week, non low-
paying occupations, workers aged 16+, UK, 2020
16
20
24
28
32
36
40
Dec 30
Jan 13
Jan 27
Feb 10
Feb 24
Mar 09
Mar 23
Apr 06
Apr 20
May 04
May 18
Jun 01
Jun 15
Jun 29
Jul 13
Jul 27
Aug 10
Aug 24
Mean hours worked
Low-paying occupations 2015-2019 range
Low-paying occupations 2020
16
20
24
28
32
36
40
Dec 30
Jan 13
Jan 27
Feb 10
Feb 24
Mar 09
Mar 23
Apr 06
Apr 20
May 04
May 18
Jun 01
Jun 15
Jun 29
Jul 13
Jul 27
Aug 10
Aug 24
Mean hours worked
Non low-paying occupations 2015-2019 range
Non low-paying occupations 2020

Pay during the pandemic
The lockdown restrictions and decline in hours worked affected
pay packets. Pay growth, as measured by both the ONS’s Average
Weekly Earnings (AWE) and HMRC’s Real Time Information (RTI),
fell into reverse in the first few months of the pandemic. This fall
was particularly steep in retail and hospitality, where weekly
earnings declined by over 5 per cent from April to June.
The more timely RTI data suggest that the growth in median
monthly pay had returned to pre-Covid rates by September.
However, compositional effects will have played a part – with the
lowest-paid jobs most likely to have been lost – and the total RTI
pay bill in August remaining below its level in February. RTI pay
data also shows how the CJRS largely protected earnings. While
both GDP and hours worked fell by over 20 per cent in the spring,
the total pay bill fell by around 4 per cent. On the next page we
explore this in more detail for low-paid workers.
Data tracking average pay settlements had already shown signs of
softening through 2020. Although nearly half of pay deals were
concluded between 2 and 3 per cent, there was a large increase in
the proportion of pay freezes in 2020. This was expected to
intensify in 2021.
CPI has overtaken RPI as the most commonly used inflation
indicator for pay setting. Inflation has slowed since the end of
2017 and was low in 2020 – CPI increased by 0.5 per cent in
September – driven by falling fuel and energy prices, lower prices
for clothing and footwear during lockdown, and affected by Covid-
related factors such as the Eat Out to Help Out Scheme,
reductions in VAT, and unavailable items.
Even with low and falling inflation, real wages fell as weekly pay
fell in the spring. However, these real wage falls have started to
unwind as pay growth picked up over the summer.
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January 2019
March 2019
May 2019
July 2019
September 2019
November 2019
January 2020
March 2020
May 2020
July 2020
September 2020
Index January (2019=100)
RTI aggregate pay
RTI median pay
AWE total pay
RTI payrolled employees
11
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Pay freeze
0.1 to
0.9%
1.0 to
1.9%
2.0 to
2.9%
3.0 to
3.9%
4.0% or
higher
Pay award
2017
2018
2019
2020
2021 forecast
Proportion of pay awards (per cent)
Average pay growth, UK, January 2019-September 2020
Distribution of pay awards, 2017-2020 and expected in 2021

Low-paid workers in the CJRS
Thanks to the ONS’s work in matching their datasets with the
Government’s CJRS records, we are able to identify the
majority of individuals in ASHE who were furloughed on the
scheme. We can distinguish between furloughed workers on
their full normal pay and those below their full normal pay.
However, we do not have a good estimate of the hourly pay of
furloughed workers. Although we can see their typical hours
of work, their actual hours of work at the time of the survey
were zero. Using their typical hours could bias any estimates
of hourly pay in 2020 for workers who were furloughed. This
includes estimates of minimum wage coverage and
underpayment. In fact any worker who was furloughed will
have no actual hourly pay. This is a problem as we rely on
hourly pay estimates for much of our analysis, including the
NLW path, discussed on page 18.
One way of getting around this problem is to link the ASHE
data for 2019 to the data for 2020. This allows us to use an
individual’s pay in 2019 as a proxy for their pay in 2020 and to
look at how use of CJRS differed across the pay distribution.
The chart shows use of furloughing for employees aged 25
and over, split between those whose employer has made up
their pay to 100 per cent (full pay), and those paid less than full
pay (part pay).
The data shows that the lower a worker’s pay, the more likely
they are to have been furloughed and to have lost pay in the
process. At the bottom of the pay distribution over half of
furloughed workers were on partial pay, compared to around
30 per cent at the top.
12
Furlough status in 2020, by 2019 pay, employees aged 25
and over, UK, April 2020
£0
£10
£20
£30
£40
£50
£60
£70
0.0
10.0
20.0
30.0
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60.0
70.0
0
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95
100
2019 hourly pay
Percent of each percentile
2019 hourly pay percentile
Furloughed on partial pay
Furloughed on full pay
Proportion of furloughed who are on partial pay
2019 Pay (RHS)

Young workers
This has been a particularly challenging year for young people.
They are more likely to work in the sectors that have been hit
hardest by lockdown measures, including hospitality and non-
essential retail. More than half of workers aged 16-18 work in
these affected sectors.
Partly as a result of this, young people were more likely to have
been furloughed. Around 18 per cent of all furloughed
employments were for workers aged under 25, despite this
age group making up just 11 per cent of all jobs. Many of those
furloughed experienced changes to their pay.
0
20
40
60
80
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20
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22
23
24
25
26
27
28
29
30
Proportion of workers (per cent)
Age
Arts
Childcare
Domestic services
Hospitality
Personal care
Retail
Transport
Travel
Proportion furloughed
13
While the CJRS has enabled businesses to keep workers on
their payrolls, these workers may still be at greater risk of
unemployment.
By the end of August, unemployment rates had already
started to rise to levels not seen since 2015 for all of the
age groups eligible for the youth rates.
This is particularly concerning because young people are
highly susceptible to scarring. They can have poorer labour
market outcomes that can last for several years beyond any
unemployment spell.
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10
15
20
25
30
Dec 30
Jan 13
Jan 27
Feb 10
Feb 24
Mar 09
Mar 23
Apr 06
Apr 20
May 04
May 18
Jun 01
Jun 15
Jun 29
Jul 13
Jul 27
Aug 10
Aug 24
Weekly unemployment rate (per cent)
16-17
18-20
21-22
23-24
25-30
Proportion of young workers in sectors most affected by
lockdown measures, UK, 2020
Unemployment rate of young people by age, weekly data, UK,
2020

Moving the NLW age threshold
Our recommendation in 2019 to reduce the NLW age threshold
from 25 to 23 (and then to 21) was based on seven arguments.
Firstly, that use of the 21-24 Year Old Rate amongst that age
group is low. This continues to be the case; fewer than 100,000
workers aged 23-24 have a stated hourly rate below the NLW.
The second argument was that moving this age group up to the
NLW would result in reasonable bites (defined as the ratio of
the minimum wage to median hourly pay for that age group).
This is hard to measure given limitations with the pay data, but
we judge that the bite for this group is still likely to be below
the bite for 21-22 year olds.
Third, that 23-24 year olds are similar to 25 year olds across a
range of indicators. This is true in terms of the ways they have
been affected by the lockdown – including the proportion
furloughed or working no hours, and the rates at which they are
returning to work. However, their unemployment is increasing
at a faster rate than older workers.
Fourth, that stakeholders agreed the NLW age threshold should
be lowered. This year, stakeholder views were more mixed,
with some business groups including the Federation of Small
Businesses and British Chambers of Commerce calling for a
delay. However, most business representatives continued to
support the change, as well as all unions.
Research evidence supports the change. The last time the age
threshold of the adult rate was lowered in 2010, econometric
analysis found no significant negative employment effect. This
is particularly relevant as the change took place in the aftermath
of the financial crisis.
0
40
80
120
160
200
Keyworker
Other
Shutdown
Keyworker
Other
Shutdown
Keyworker
Other
Shutdown
Keyworker
Other
Shutdown
16-17
18-20
21-22
23-24
Number of jobs (thousands)
Stated pay above 2020 rate but below 2020 NLW
Stated pay at or below 2020 rate
14
Demographic changes over the next few years are also likely to
reduce the risk. The size of the 21-24 year old age group will get
smaller, which should help to protect them.
The final argument was that record high employment and a
tightening labour market were likely to offer protections to young
workers. Although this argument has not stood the test of this
year, and the position of 23 and 24 year olds has weakened in the
pandemic, we judge that on balance, the majority of arguments
made in the youth review continue to support the change.
Coverage and usage of the NMW rates among hourly-paid workers,
using stated hourly pay, UK, April 2020

Apprentice Rate review
Like other parts of the labour market, recruitment of
apprentices fell dramatically in the initial wave of the
pandemic – compared with 2019, starts in England fell by
more than 50 per cent and in Scotland by more than 80 per
cent. The largest proportional falls were among the youngest
apprentices and starts at level 2.
There were signs of some rebound over the summer, with an
uptick in vacancies on the English Find an Apprenticeship
service. But at the time of our decision, we did not have data
for the key month of September, where starts for the new
academic year tend to be clustered.
In England (although not in the rest of the UK), starts at level 2
and among those aged under 19 (the groups most exposed to
the Apprentice Rate) have steadily declined for a number of
years but we believe policy changes have driven this rather
than the minimum wage.
We have concluded a review of the Apprentice Rate this year,
and will present full conclusions in our main report.
In our consultation, we sought views on whether it would be
appropriate to raise the Apprentice Rate to the same level as
the 16-17 Year Old Rate. The majority of stakeholders from
both the employer and worker sides supported this change in
principle. However, there was caution in some quarters about
the impact of a significant increase at a point when the labour
market for apprentices is facing such uncertainty. Given this,
we consider it is the right decision to align the rates, but that
this should take place over two years, with a more cautious
increase in 2021 and full alignment in 2022.
15
0
10
20
30
40
50
60
Level 2
Level 3
Level 4+
16-18
19-24
25+
Apprenticeship starts (thousands)
Apr-Jul 2020
Apr-Jul 2019
Apprenticeship starts by age and level, England, April-July
2019 and April-July 2020
0
2
4
6
8
10
12
14
16
Sep 2019
Oct 2019
Nov 2019
Dec 2019
Jan 2020
Feb 2020
Mar 2020
Apr 2020
May 2020
Jun 2020
Jul 2020
Aug 2020
Vacancies advertised on Find an
Apprenticeship service (thousands)
Level 2 vacancies
Level 3 vacancies
Level 4+ vacancies
Total in previous year
Apprenticeship vacancies on Find an Apprenticeship service,
England, September 2019-August 2020

Stakeholder evidence
Our usual engagement with stakeholders was disrupted by Covid-19, meaning that we could not hold face-to-face meetings or
carry out our planned programme of regional visits. Nevertheless, we heard evidence from employers and workers alike about the
impact of the National Minimum Wage and the effects of the pandemic.
16
What we heard from employers
Employers were operating under huge
uncertainty throughout the year – with
little visibility over business conditions
from week to week. Many in low-paying
sectors felt they were on a knife-edge of
survival.
•
For many, adapting to Covid-19 meant
high costs and reduced capacity – and
squeezed the cash available for
productivity-enhancing investments.
•
Employers in many sectors were
concerned about their ability to pass
costs through to consumers via price
increases.
•
Managing pay differentials between
low-paid staff and higher grades
remained a major challenge, with
narrow differentials leading to
discontent.
•
Publicly-funded sectors continued to
struggle to afford increases – with
severe pressure on the workforces in
social care and childcare.
Views on the National Living Wage
There was a wide range of views on
how the minimum wage should respond
to the impacts of the pandemic.
•
Stakeholders representing both
workers and employers recognised it
was desirable to recognise the
contributions of low-paid key workers.
•
Workers’ representatives argued the
minimum wage should be £10 per
hour, and at a minimum should
remain ‘on course’ to the 2024 NLW
target, to protect and improve
workers’ living standards.
•
Employers’ representatives generally
asked the LPC to be cautious in its
increases, given existing economic
damage and heavy uncertainty over
the future.
•
Relatively few groups argued for a
freeze in the NLW. Those who did
cited the need to protect
employment.
What we heard from workers
Although the CJRS protected jobs, low-
paid workers faced considerable
hardship, whether they were able to
work during lockdown, were in
furloughed jobs, or slipped through the
cracks of Government support.
•
Workers who were furloughed had to
deal with lost income, reduced
confidence and uncertainty over their
return to work.
•
Low-paid workers told us the
pandemic exposed their insecurity –
with some worried about being
forced onto worse terms and
conditions.
•
Many low-paid key workers – in food
retail and social care – continued to
work in challenging conditions
through the depths of the pandemic.
•
The hit to workers’ income
exacerbated existing problems of in-
work poverty and the uneven impacts
of low pay by gender and ethnicity.

Prospects for the economy
Our deliberations take into account the latest forecasts for the
economy, although this year these were subject to a higher
degree of uncertainty than usual.
At the time of our recommendations, forecasts indicated that
GDP was likely to fall by around 10 per cent in 2020 with a
rebound in 2021 of around 6-9 per cent. Although this would
represent historically strong growth, GDP at the end of 2021
would still remain below its level at the end of 2019.
Employment was expected to fall as support from the CJRS
unwound, with unemployment picking up as a result. The fall
is now expected to be delayed as Government support for
jobs and business has become more generous and prolonged
since we met to agree recommendations.
Inflation was expected to rise towards its 2 per cent target but
there seemed little pressure from wages, producer prices, and
business-to-business prices although some costs had
increased. Pay settlements were expected to maintain their
bimodal distribution with peaks at a pay freeze and around 2
per cent. Earnings growth was expected to pick up as the
economy recovered, with increasing hours reversing the falls
in weekly and monthly wages observed as hours fell to zero
for many workers at the start of the pandemic.
With businesses struggling to survive, indebtedness already
high, heightened economic uncertainty and investment having
stagnated since 2016, it is unlikely business investment will
be much of a driver of growth in the next twelve months. The
trading environment is also unlikely to offer much opportunity
to boost trade.
The strength of the economy over the next 12 months or so is
therefore likely to mainly depend on the consumer as well as
Government spending. Real incomes fell in the spring (albeit
supported by CJRS, support for the self-employed and
increased generosity of Universal Credit) but consumer
spending had fallen much further, leading to a record rise in
savings. Future consumption will depend on the speed at
which these savings are spent, concerns about job security,
and consumer confidence.
In all these forecasts, however, two factors loom large: Covid-
19 and Brexit. The outcome of the Brexit negotiations and the
speed with which the virus is tackled will both have a major
effect on economic performance over the next year.
17
OBR forecasts -
central scenario
Bank of England
forecasts
Median of HM
Treasury Panel
July 2020
August 2020
August/October
2020
2020 2021 2022 2020 2021 2022 2020 2021 2022
GDP Growth1
-12.4
8.7
4.5
-9.5
9.0
3.5
-10.1
6.1
3.3
Average Earnings AWE1
0.2
3.7
2.7
-1.3
3.0
3.8
0.3
2.4
2.7
Inflation CPI2
0.7
1.3
1.9
0.3
1.8
2.0
0.5
2.0
1.9
Inflation RPI2
1.3
1.1
3.0
1.1
2.6
3.0
Employment growth1
-4.5
-1.2
4.0
-3.8
2.5
2.0
-1.2
-2.1
ILO unemployment rate2
8.8 10.1
6.9
7.5
6.0
4.5
7.7
6.9
5.7
1= Forecast for whole year. 2 = Forecast for Quarter 4
Summary of economic forecasts

The path of the National Living Wage
This year we have had to recommend rates that best balance the
desire to increase pay with the need to protect employment, in
the context of the Covid-19 economic shock.
As discussed on page 12 there are problems with measuring
what happened to hourly pay through the crisis. We rely on
ASHE to plot our position on the path to 2024, but this year,
because of the effects of the crisis and CJRS on the data, we
cannot tell where £8.72 was on the NLW path to 66.7 per cent
of median pay with our usual precision. This complicates any
attempt to work out the next step on the path to 2024.
Our approach this year is to recommend rates that minimise any
‘significant risk’ to employment prospects, as per our remit. This
led us to recommend a 2021 NLW rate of £8.91. This is lower
than our best estimate of the on-course rate of £9.06, but is
modestly higher than the increase in prices, meaning low-paid
workers’ living standards should be protected. For a fuller
account of the rationale for our rate recommendations, see our
letter of advice to the Government.
We have produced an indicative path here, but this is subject to
more uncertainty than usual. The fainter lines either side of the
main trajectory show how the path would be affected if pay
growth differs by 0.5 per cent from the current forecasts. This
could move the path by more than 20 pence up or down by
2024.
Given uncertainty over the future, we do not recommend a
change to the Government’s target of two-thirds of median
earnings by 2024. We remain committed to the goal of ending
low pay. A fuller review of the path ahead – and greater clarity on
a future rate path – will hopefully be possible in our 2021 Report.
£10.32
£8.72
£8.91
£9.40
£8.00
£8.50
£9.00
£9.50
£10.00
£10.50
£11.00
2019
2020
2021
2022
2023
2024
NLW rate
21+
23+
25+
18
NLW
2019
2020
2021
2022
2023
2024
25+
£8.21
£8.72
23+
£8.91
£9.40
£9.94
21+
£9.85
£10.32
Indicative NLW path forecasts
Indicative path forecasts

Chart sources
Page 4: LPC estimates using ONS data, monthly gross domestic product index (ECY2),
monthly, seasonally adjusted, UK, January 2019-August 2020 and LPC estimates
using ONS data, gross domestic product (ABMI), quarterly, seasonally adjusted, UK,
1973 Q2-2020 Q2.
Page 5: LPC estimates using ONS Business Impact of Covid-19 Survey (BICS) Wave 15
data.
Page 6: LPC estimates using HMRC CJRS data.
Page 7: LPC estimates using HMRC RTI data and ONS data, total employment (MGRZ),
employees (MGRN) and employee jobs (JOBS03).
Page 8: LPC estimates using LFS microdata, quarterly population weights, not
seasonally adjusted, UK, Q2 2020-June-August 2020 and ONS data YCBL, YCBM,
YCBO, YCBP, YCBR, YCBS, YCBU, YCBV, MGSA and MGSB.
Page 9: ONS Single month vacancies estimates (X06); UK vacancy count from The
Adzuna API, www.adzuna.co.uk and ONS redundancies (BEAO).
Page 10: LPC estimates using LFS Microdata, quarterly population weights, not
seasonally adjusted, UK, Q1 2020-June-August 2020.
Page 11: LPC estimates using ONS data, average weekly earnings total pay (KAB9)
and RTI estimates of median pay, aggregate pay and payrolled employees, January
2019-September 2020 and LPC estimates using XpertHR data, 2017-2020
Page 12: LPC estimates using ASHE 2010 methodology, standard weights, UK, 2019-
2020. Note: Data exclude first year apprentices.
Page 13: LPC estimates using LFS, population weights, UK, 2020 Q1, HMRC CJRS
statistics in August 2020 and IFS definition of lockdown sectors; LPC estimates using
LFS, population weights, weekly data, UK.
Page 14: LPC estimates using ASHE 2010 methodology, standard weights, UK, 2020.
Note: Data exclude first year apprentices.
Page 15: LPC estimates using Department for Education Apprenticeship and levy
statistics (August 2020) and Vacancies and adverts posted on the Find An
Apprenticeship website, by level (August 2020).
Page 17: LPC estimates using HM Treasury Forecasts for the UK economy (August and
October 2020), Bank of England Monetary Policy Report (August 2020) and Office for
Budget Responsibility Fiscal Sustainability Report (July 2020)
Page 18: LPC estimates using ASHE 2019, population weights AWE total and HM
Treasury Forecasts for the UK economy (August and October 2020) and Bank of
England Monetary Policy Report (August 2020)
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