New evidence sheds light on how minimum wage policy shapes living standards across the UK

As the UK continues to grapple with rising living costs, weak productivity growth, and pressure on household finances, the Low Pay Commission’s 2025 Annual Report brings together new evidence on how minimum wage policy is shaping living standards across the country. Among the commissioned studies is research led by Professor Arnab Bhattacharjee (Edinburgh Business School, Heriot-Watt University) at the National Institute of Economic and Social Research (NIESR), offering a long-term view of how households respond to higher minimum wages.

The NIESR study uses a dynamic microsimulation model integrated with regional macroeconomies, published here, to follow households over time, capturing changes not only in earnings but also in spending, saving, and labour supply. It tested nine policy scenarios, combining different trajectories for the National Living Wage and National Minimum Wage with alternative approaches to extending it to younger workers aged 18–20, reflecting choices currently facing UK policymakers. This evidence informed recommendations from the Low Pay Commission for minimum wage rates from April 2026 provided to HM Government.

The findings show that minimum wage workers are spread widely across the income distribution, often living in dual-earner households. Single-adult households, which are more likely to sit at the lower end of the income scale, experience the largest income gains from minimum wage increases but tend to save part of these gains. Couple households see smaller income effects, but their consumption rises more closely in line with income. Overall, changes to working hours are limited, suggesting higher minimum wages do not lead to large reductions in labour supply.

Reflecting on the broader implications, Professor Bhattacharjee noted that the research highlights both the strengths and limits of minimum wage policy in the current UK context.

He said: “Minimum wage increases play an important role in supporting living standards, particularly for low-income households, but their impact is shaped by the wider tax and welfare system, regional economic conditions and labour demand for low-skilled workers. Understanding how households adjust skills and labour supply decisions over time is essential if wage policy is to work effectively alongside other levers of economic policy.”

By embedding household decisions within a wider macroeconomic and regional framework, this research strengthens the Commission’s evidence base and underscores the role of minimum wage policy as part of a broader UK strategy to improve living standards, rather than a standalone solution.