People on living wage will have April 2026 rise negated by employer trick and tax freeze hits millions
The poorest paid people in the Uk have had a living wage rise – but that could vanish, experts have explained(Image: Getty)
Workers on the living wage have been issued a sobering reality check regarding their actual take-home pay, despite an upcoming increase scheduled for 2026. Come 1 April 2026, the national living wage (NLW) for those aged over 21 will rise from £12.21 to £12.71 per hour.
In principle, this translates to annual earnings of £23,132 for a 35-hour working week and £24,784 for 37.5 hours. The development arrives as Chancellor Rachel Reeves has extended the freeze on income tax thresholds by a further three years until 2031, resulting in more low-paid employees facing additional tax burdens once their earnings exceed the £12,570 threshold.
Speaking to Sky Money, HR specialist Kate Underwood cautioned that workers’ actual earnings would fall considerably short of expectations. She stated: “In theory, this is great, but in practice the whole concept of a national living wage is an illusion that does not survive contact with the real world of business.”
Underwood explained the harsh arithmetic behind the disparity: “The maths are brutal and all these extra hours quickly dilute the real rate people are earning and make a mockery of official minimum wage figures.”
According to Underwood, unpaid additional hours have become so commonplace that numerous workers fail to recognise they’re essentially toiling for less than the minimum wage. Working beyond contracted hours to safeguard employment, checking emails whilst on annual leave, or undertaking “mandatory” training during personal time all feed into what she described as “invisible hours”.
A worker employed for 37.5 hours yet regularly clocking up 45 would witness their actual hourly pay drop to approximately £10.59 – significantly beneath the statutory minimum, she explained. Colette Mason, an AI consultant from London-based Clever Clogs AI, argued that technology frequently exacerbates the problem.
“Many HR systems become accomplices to wage theft without anyone noticing,” she told news agency Newspage. “Time‐tracking software logs only official hours, managers praise ‘going the extra mile’ and unpaid overtime gets reframed as commitment. That’s not a business model. That’s structural wage suppression dressed up as flexibility.”
Both specialists called on employers to monitor actual working hours, restructure positions where workloads surpass contracted time and cease glorifying excessive working hours culture.
Regarding the tax threshold effect on the lowest paid workers, the Thinktank Institute for Fiscal Studies stated: “More minimum wage workers are being brought into income tax – driven by both the tax freezes and substantial minimum wage increases. In 2015–16, just before the minimum wage started rising rapidly, a minimum wage worker would have needed to work 31 hours a week for a year to pay income tax.
The IFS noted that an additional two years of income tax freezes indicated that figure would decline to merely 18 hours by 2029–30 – ‘the lowest level since the minimum wage was introduced in 1999’. The report further stated: “In other words, increasingly, even part-time minimum wage workers can expect to pay at least some income tax on their earnings. One consequence of this is to reduce how much of a minimum wage rise goes to workers, with more of the pay rise being recouped by the exchequer in the form of tax”.
An extension of the freeze could ‘result in a full-time minimum wage worker paying £137 per year more in tax relative to current policy and £759 more than if there had been no freezes in the first place. ‘.
There have also been allegations against some employers for not paying the living wage. People can use a government resource to check the figures here.
