Minimum wage hike with maximum consequences

This report is taken from this week’s CNBC UK Stock Exchange newsletter. Like what you see? You can subscribe here.

Mission

Although it is Next budget There are still three weeks to go, and exhausted political commentators are already confident of some of the measures to be announced by Rachel Reeves, the UK Finance Minister.

The first is a further extension to freeze the thresholds at which people start paying the basic and top rates of income tax.

Another is a 4% increase in the National Living Wage (NLW) – the minimum hourly wage that British employers must pay workers aged 21 or over – to £12.70 ($16.56) from the start of the new tax year in April 2026.

This would take the annual salary of someone in the NLW working 40 hours a week to £26,416. (The NLW should not be confused with the National Minimum Wage, paid to those aged 16 to 21, although there is speculation that Reeves will bring this in line with the NLW for workers over 18).

This would confirm that the UK has one of the highest legal minimum wages in the world, which is lower than Australia and New Zealand, but higher than its counterparts such as France and Germany, and significantly ahead of Japan, the United States and Canada.

This is already hitting the broader economy. the Latest NLW increase – to £12.21 in April – was accompanied by a rise in employers’ National Insurance and payroll tax, along with a fall in the level at which the latter begins. This has led to sharply increased recruitment costs and, consequently, job losses – especially in the hospitality industry. The number of paid staff in the UK fell by 115,000 between August 2024 and August this year. This move also contributed to higher inflation.

However, wage increases expected this month may have another impact. According to the Financial Timesmany employers are concerned that after the expected rise, NLW workers will earn close to the typical starting salary for graduate roles in professions such as accounting, law and finance.

The newspaper quoted one chief executive as saying: “Why should young people take on £45,000 of student debt if they can have the same shelves?”

Such dynamics threaten to undermine the long-held assumption that a college degree guarantees a better job and higher earnings. This assumption underpinned the massive expansion of university education initiated by Tony Blair, the former prime minister, who said in 1999 that he wanted 50% of school leavers to go to university – up from about a third at the time. This goal was reached in 2019.

However, going to university has become much more expensive, with the cost of higher education shifting from the state to the individual via tuition fees. These fees were set at £1,000 a year when introduced by the Blair government in 1998, and have since risen to £9,535 a year in England (they are lower in Wales and Northern Ireland, while Scottish students studying in Scotland pay no tuition fees). Most students take out loans to pay these fees, which now become repayable once a graduate’s salary reaches £25,000. These premiums amount to 9% of salary and effectively act as a tax on graduates.

So not only does the rise in the National Living Wage threaten to match graduates’ starting salaries in trades, but a graduate paying the same amount as someone in the NLW will actually make less money if they take out a student loan.

At the same time, graduate jobs are becoming rarer. The Institute of Student Employers reported last month that large graduate employers had reduced their recruitment for the second year in a row, reducing their admissions by 8% in the last academic year alone. Three of the UK’s “Big Four” accountancy firms (PwC, EY, KPMG and Deloitte), which have traditionally been among the biggest employers of new graduates, have reduced recruitment further.

Could this push 18-year-olds away from university and towards the trades, apprenticeships or even entrepreneurship?

UK’s Reeves addresses tax hike speculation in unusual pre-Budget speech British Chancellor Rachel Reeves I dealt with speculation On her financial plans, she told the British public that her budget would focus on “fairness and opportunity” but there were “pressures on public finances” that needed to be addressed.

The cyber attack on Jaguar Land Rover raises questions about Britain’s preparedness. On September 2, Jaguar Land Rover reported that it had been involved in a “cyber incident.” Cyber ​​Monitoring Center estimated Attack It cost the UK £1.9 billion ($2.5 billion).

Shell announces stock buybacks at the top of earnings estimates. The British oil giant on Thursday reported adjusted earnings of $5.4 billion for the quarter, higher than the $5.05 billion estimated by analysts, according to LSEG. As revealed by A Share buyback worth $3.5 billion During the next three months.

—Yu Boon Peng, Holly Eliat

Quote of the week

In the markets

London FTSE 100 index It rose slightly over the past week, adding about 0.1% in the seven days to Tuesday’s close. Corporate profits were the focus of investors in the UK, with a host of London-listed companies, including HSBC, GSK, and oil majors Shell and BP, reporting.

Meanwhile, the return on the index in the United Kingdom 10-year government bonds — known as gilts — had a volatile Tuesday after Reeves A surprise speech before the budget.

The Chancellor addressed speculation that the ruling Labor Party would break its manifesto pledge not to raise taxes on working people – but she would not be drawn into giving a definitive answer on whether tax rises are on the cards.

Yields fell by as much as 4 basis points during the speech, but the downward moves narrowed as it failed to provide any concrete guidance on what to expect on November 26.

The gold market’s reaction reflects “initial relief followed by caution,” according to Julian Howard, chief multi-asset investment strategist at GAM Investments, who noted a “frustrating lack of detail” in the letter.

the British pound It fell about 1% against the US dollar over the past week, trading around $1.3035 late Tuesday.

– Chloe Taylor

Coming

November 5: UK new car sales for October
November 6: Bank of England interest rate decision
November 11: UK unemployment rate for September

– Holly Eliatt