Chancellor Jeremy Hunt has confirmed the biggest-ever hike in the UK minimum wage – but the move places strained council finances under fresh pressure.

As expected, Mr Hunt announced that the National Living Wage (NLW) will increase by £1.02 in April 2024: from £10.42 per hour for over 23-year-olds to £11.44. The new rate will also apply to 21 and 22-year-olds for the first time.

Mr Hunt said the new rate was worth an extra £1,800 per year to the UK's lowest-paid workers.

But while the increase will provide a much-needed boost to public sector personnel at the lower end of wage spines – such as social care staff – the move will increase many councils' pay bills considerably during continued sector austerity.

Council employers have warned any current wiggle room in town hall budgets could be erased, or dramatically reduced, by the new pay requirements. Privately, some senior employers have said the issue is now likely to ‘dominate' pay discussions with local government trade unions next year – and have already made future pay obligations a tenet of current discussions with ministers over the local government finance settlement due in December.

One senior local government source told The MJ that the new NLW rate was ‘higher than the top end forecast last year but in the realm of what we expected'.

The source added that while the new rate meant councils' financial ‘headroom' would reduce dramatically, meaning there will only be minor wiggle room between April 2024 – when the new NLW rate kicks in – and when local government pay settlements are agreed next year.

‘It's a big increase [in NLW] and will push up social care costs quite a bit.'

In October, the Local Government Association wrote to Mr Hunt, warning that the combination of recent increases in the NLW, energy costs and inflation had placed ‘placed substantial pressure on council finances'.

Responding to the Autumn Statement, Graeme McDonald, managing director of the Society of Local Authority Chief Executives, said: ‘All the independent analysis shows significant and growing gaps in council budgets, increasing numbers of which are in financial crisis through no fault of their own.

‘As a result, the Government must address this when it announces detailed funding for councils next month.'