Rising national living wage rates drives ‘squeezeflation’ across UK pay structures

By Brightmine

New analysis from Brightmine reveals that sustained increases in the National Living Wage (NLW) are reshaping pay across UK organisations, creating a growing ‘squeezeflation’ effect for mid- and higher-paid employees as pay differentials between roles narrows.

UK national minimum wage has consistently outpaced both inflation and typical employer pay awards. As a result, organisations are allocating a growing share of pay budgets to entry-level roles, leaving less headroom for progression across mid-level and senior grades.

This is creating a ‘squeezeflation’ effect, with pay gaps between roles narrowing. Entry-level pay rose by 12.9% in 2024, compared with 7.6% for intermediate roles and 5.8% for senior staff, weakening the financial return on progression and incentives to move up.

Key findings include:

• The National Minimum Wage and later the Living Wage has risen faster than RPI inflation in 17 of the last 26 years
• The National Minimum Wage and later the Living Wage has outpaced average earnings growth in 18 of the last 26 years
• Typical annual pay awards reported to Brightmine by employers, outpaced RPI inflation in 11 of the last 25 years
• Typical employer pay awards remained at around 2%–3% throughout the 2010s

More recently:

• NLW increased by 9.7% in 2023, compared to average pay awards of 5.3%
• NLW increased by 9.8% in 2024, compared to 5.8% pay awards
• NLW increased by 6.7% in 2025, compared to 4.3% pay awards

The impact is also being felt in employee retention and engagement. Almost two-thirds (63.2%) of employers cite limited promotion or progression opportunities as a reason for staff turnover, while 60% claim that their pay and benefits are not competitive, highlighting how stalled progression and narrowing pay gaps are contributing to turnover.

Jennie Jakubowski, Head of Data Operations at Brightmine, says: “For businesses, the challenge is finding a balance between fairness and affordability. Many are exploring structural changes, such as simplifying pay bands, introducing clearer skills-based progression, and strengthening career pathways. There is also a growing focus on the wider reward package, including wellbeing and development, alongside clearer communication, so employees better understand how they can progress and what they are working towards.”