National Living Wage increased to £8.91 an hour in Chancellor's Spending Review

25 November 2020, 13:24 | Updated: 25 November 2020, 13:53

By Megan White

The National Living Wage will increase by 2.2% to £8.91 an hour, with this rate extended to those aged 23 and over, the Chancellor has announced in his Spending Review.

Delivering his Spending Review, Rishi Sunak told the House of Commons that the National Minimum Wage will also be increased, with the increases benefiting around two million people.

The Government is providing £280 billion to "get our country through coronavirus" and the Chancellor also said £3 billion would be provided to support NHS recovery.

Read more: Rishi Sunak cuts public sector pay but gives boost to jobs in Covid 'emergency'

Read more: Covid crisis: Economy slumps by 11.3 per cent, largest fall in 300 years - OBR

Mr Sunak said: "We are accepting, in full, the recommendations of the Low Pay Commission to increase the National Living Wage by 2.2% to £8.91 an hour, to extend this rate to those aged 23 and over, and to increase the National Minimum Wage rates as well.

"Taken together, these minimum wage increases will likely benefit around two million people.

"A full-time worker on the National Minimum Wage will see their annual earnings increase by £345 next year.

"And compared to 2016, when the policy was first introduced, that's a pay rise of over £4,000."

On departmental spending, the Chancellor said it will total £540 billion next year before noting: "Over this year and next, day-to-day departmental spending will rise, in real terms, by 3.8% - the fastest growth rate in 15 years."

Setting out his Spending Review, the Chancellor said the economic emergency caused by coronavirus has only just begun and there will be "lasting damage" to the UK.

Official forecasts showed the UK economy was expected to shrink by 11.3% this year, the worst recession for more than 300 years.

The Chancellor told MPs that the Office for Budget Responsibility did not expect the economy to return to its pre-crisis levels until the end of 2022 and the damage was likely to last.

The "long-term scarring" would mean that in 2025 the economy will be around 3% smaller than expected in March.

In his Commons statement on Wednesday, the Chancellor announced the launch of a three-year Restart programme which will help more than a million unemployed people get back into work in the wake of the pandemic.

Mr Sunak warned that this initiative will not fix what coronavirus has taken away. He said: "I've always said, we cannot protect every job."

The pandemic is estimated to lose around 2.6 million jobs, and the Government is borrowing £394 billion in an attempt to keep the country afloat.

But he also announced a public sector pay freeze to balance the books.

Wages for more than four million workers will be capped or frozen altogether, with only front line NHS doctors and nurses exempt.

In a "sobering" speech to the House of Commons, Mr Sunak said the Office for Budget Responsibility estimates the economy will fall by 11.3% - the largest fall in 300 years.

He also estimated that the levels of growth won't reach pre-pandemic levels until the last quarter of 2022.

On the Office for Budget Responsibility's economic forecasts, Rishi Sunak said the economy will "contract this year by 11.3%, the largest fall in output for more than 300 years".

He said: "As the restrictions are eased, they expect the economy to start recovering - growing by 5.5% next year, 6.6% in 2022, then 2.3%, 1.7% and 1.8% in the following years.

"Even with growth returning, our economic output is not expected to return to pre-crisis levels until the fourth quarter of 2022 - and the economic damage is likely to be lasting. Long-term scarring means, in 2025, the economy will be around 3% smaller than expected in the March Budget."