National Living Wage estimated to rise 4.1% in 2026

HMRC has released its latest estimates for the National Living Wage (NLW), projecting a 4.1% increase from April 2026. If confirmed, this would raise the hourly rate for workers aged 21 and over to £12.71.

This is based on the Low Pay Commission’s latest projections, aimed at maintaining the government’s target of pegging the NLW at two-thirds of median earnings.

While these forecasts are still subject to economic review and won’t be finalised until October 2025, the direction of travel is clear: rising wages are here to stay and businesses need to plan accordingly.

What’s driving this increase?

There are a few key drivers behind the projected rise:

• Higher-than-expected average wage growth in 2025 (currently 5.1% year-on-year).
• Continued government commitment to increasing living standards through higher statutory pay.
• A move towards eliminating the lower minimum wage rate for 18–20-year-olds, potentially increasing wage costs across more roles.

All of this reflects a broader shift in labour market policy where government support is tilting towards workers rather than easing cost pressures on employers.

What does this mean for business owners?

Whether you’re running a hospitality business, a construction firm, or a growing service-based company, wage inflation will squeeze margins if you don’t plan ahead.

And with minimum wage increases often setting the pace for pay expectations across the board, even staff on higher salaries may expect a raise to “keep up”.

With the National Living Wage projected to rise 4.1% in April 2026, while inflation is expected to fall from 3.8% today (July 2025) to around 2–2.6%, workers could enjoy a real increase in pay of roughly 2%. This is good news for employees, boosting morale and retention, but it also brings additional pressure for businesses.

Higher wages increase operating costs, and even though inflation may be moderating, other expenses like energy, rent, and raw materials remain substantial. As a result, businesses need to plan carefully to protect margins and sustain growth.

At A4G, we work closely with owner-managed businesses, and here’s what we’re advising clients to do now:

1. Model your staffing costs ahead of time

If you’re still using last year’s payroll numbers in your forecasts, you’re underestimating your costs.

Update your 12–24 month cashflow forecasts to reflect not just this year’s rates, but anticipated rises in April 2026, too. The Low Pay Commission currently projects a range of £12.55 to £12.86 per hour planning for the top end gives you breathing room.

2. Review your team structure and hours

Don’t automatically jump to cutting hours but do take a step back.

Are all roles still delivering value at their current cost? Can responsibilities be shifted or productivity improved?

Some of our clients have found efficiency gains through automation and clearer role definition, especially in admin-heavy or seasonal businesses.

3. Use wage increases as a retention tool, wisely

If you’re going to pay more, make it count.

Use the NLW uplift as a prompt to review wider reward packages, introduce career pathways, or look at bonus structures that reward contribution and performance, not just attendance.

This can help justify higher wages internally and externally and give you a leg up in a competitive recruitment market.

4. Build wage pressure into your pricing strategy

For many businesses, particularly in hospitality or care, the cost of rising wages can’t be absorbed indefinitely.

If you haven’t reviewed your pricing in the last 6–12 months, now is the time. You may not need a blanket increase, but smart adjustments based on value and demand could protect your margins without alienating customers.

Our view: A balancing act for business

The government’s goal is to ensure work pays and there’s no doubt that raising the National Living Wage has helped millions.

But for many business owners, it’s becoming harder to find a balance between fair pay and commercial viability. We’re already seeing this play out in some sectors, where hours are being cut or entry-level recruitment is slowing.

The Low Pay Commission acknowledges that their recommendations can’t be purely formulaic, they need to consider economic conditions, employment rates, and business competitiveness.

That’s why now is the time to engage with your accountant and adviser, not just to stay compliant, but to stay sustainable.

Need help planning for wage increases?

At A4G, we support business owners to forecast confidently, model different staffing scenarios, and build financial plans that withstand market pressures like these.

If you’re concerned about how the 2026 wage increases could affect your margins, recruitment or growth plans, we’re here to help you work through the numbers and find the right balance.

Book a free call with one of our advisers to talk through your options.

P.S. Want to stay ahead of upcoming changes like this? Sign up to our email insights, we’ll keep you updated on tax, legislation, and strategic advice that matters to your business.