The government has confirmed a major uplift to the minimum wage from April 2026, with over-21s set to receive £12.71 an hour, a 50p increase that will affect millions of workers across the UK. For construction, where labour costs, subcontractor rates and compliance are already under intense pressure, the new rates will shape pricing, workforce availability and project viability across the sector.
Chancellor Rachel Reeves said the rise is designed to support low-income workers during a period where the cost of living remains the most significant challenge for households. The Low Pay Commission estimates around 2.7 million people will directly benefit, with many more indirectly affected as wage bands shift upwards.
The increases arrive on top of last year's 6.7% rise for over-21s and the substantial 16.3% increase for 18–20-year-olds. Combined with recent rises in employers’ National Insurance contributions, this latest change compounds a growing cost base for contractors, trades and supply-chain employers.
From April, the wage landscape will shift again:
Chancellor Rachel Reeves said the rise is designed to support low-income workers during a period where the cost of living remains the most significant challenge for households. The Low Pay Commission estimates around 2.7 million people will directly benefit, with many more indirectly affected as wage bands shift upwards.
The increases arrive on top of last year's 6.7% rise for over-21s and the substantial 16.3% increase for 18–20-year-olds. Combined with recent rises in employers’ National Insurance contributions, this latest change compounds a growing cost base for contractors, trades and supply-chain employers.
From April, the wage landscape will shift again:
- Over-21s (National Living Wage): £12.71/hour
- 18–20-year-olds: £10.85/hour
- Under-18s & apprentices: £8/hour
For a full-time adult worker at 37.5 hours per week, the new rate equates to £24,784.50 per year. The government has also signalled its intention to phase out the separate youth rate entirely, moving toward a single adult minimum wage in future years, something the Trades Union Congress has labelled absolutely the right call.
But in construction, the picture is more complex.
Impact on the UK Construction Workforce
While relatively few skilled construction workers are paid at minimum wage, the increases still ripple through the industry. General labourers, apprentices, logistics operatives, welfare attendants, cleaning teams, security and entry-level trades will all see direct or indirect uplifts. For firms already struggling with tight margins under the Building Safety Act, higher PI costs, materials inflation and stricter QA requirements, wage pressure adds another layer.
Larger contractors may absorb the increase through frameworks and long-term contracts, but SMEs (who make up 99% of the construction industry) are likely to feel the impact most immediately. Many are already contending with late payments, reduced pipeline visibility and increased insurance requirements. Each rise in statutory pay triggers parallel rises in subcontractor tender pricing, inflating total project costs.
The question for 2026 becomes whether these additional labour costs will be recognised in public-sector contract values, refurb budgets and housing delivery programmes. Without that adjustment, many businesses risk having to reduce hiring, limit investment or pass additional costs to clients.
Youth Labour and Apprenticeships: A Pressure Point
The 8.5% increase for 18–20-year-olds has raised concerns among employers who rely on younger workers, especially as apprenticeships continue to be a key route into construction. The Resolution Foundation warned that such a steep rise may make firms cautious about hiring entry-level staff, potentially increasing NEET rates.
For construction, which is facing an acute skills shortage and an ageing workforce, any reduction in apprentice intake could deepen long-term sector challenges. The industry needs a steady pipeline of young workers, not fewer.
Inflation, Tender Pricing and Project Delivery
Hospitality leaders have warned that continued annual increases could force businesses to pass costs to consumers. In construction, the equivalent is upward pressure on tenders and contract sums. Labour is a significant percentage of most project budgets, especially in refurbishment-heavy markets such as London.
Contractors already balancing higher material costs, stringent new façade safety requirements, carbon-reduction measures and more complex temporary works design obligations now face another unavoidable rise. For many, the issue is not opposition to higher pay, but the lack of parallel support.
If labour costs rise without relief on employers’ NI, business rates or VAT on repair and maintenance, some firms will have to scale back hiring or limit wage progression above the minimum.
Regional Mayors to Gain Power Over Tourist Tax - Impact on London Construction
Alongside wage rises, the government confirmed that English regional mayors will be able to introduce a tourist tax on overnight stays. For London, where Sadiq Khan has already expressed cautious support, this opens the door to a revenue stream that could influence hotel development, refurbishment cycles and hospitality-led construction.
If introduced, even at a modest rate, this tax could shift investment decisions, delay some schemes, or accelerate others aiming to lock in designs ahead of policy changes.
A Challenging but Defining Moment for the Sector
For construction, 2026 will be a year defined by high operating costs, a tightening regulatory landscape and shifting project economics. While the minimum wage increase will unquestionably help many workers facing high living costs, it will also test the resilience of SMEs, subcontractors and labour providers across the industry.
Firms that adapt early, by revising pricing models, improving productivity, leveraging digital tools and reassessing workforce planning, will be best positioned to navigate the next phase.
Larger contractors may absorb the increase through frameworks and long-term contracts, but SMEs (who make up 99% of the construction industry) are likely to feel the impact most immediately. Many are already contending with late payments, reduced pipeline visibility and increased insurance requirements. Each rise in statutory pay triggers parallel rises in subcontractor tender pricing, inflating total project costs.
The question for 2026 becomes whether these additional labour costs will be recognised in public-sector contract values, refurb budgets and housing delivery programmes. Without that adjustment, many businesses risk having to reduce hiring, limit investment or pass additional costs to clients.
Youth Labour and Apprenticeships: A Pressure Point
The 8.5% increase for 18–20-year-olds has raised concerns among employers who rely on younger workers, especially as apprenticeships continue to be a key route into construction. The Resolution Foundation warned that such a steep rise may make firms cautious about hiring entry-level staff, potentially increasing NEET rates.
For construction, which is facing an acute skills shortage and an ageing workforce, any reduction in apprentice intake could deepen long-term sector challenges. The industry needs a steady pipeline of young workers, not fewer.
Inflation, Tender Pricing and Project Delivery
Hospitality leaders have warned that continued annual increases could force businesses to pass costs to consumers. In construction, the equivalent is upward pressure on tenders and contract sums. Labour is a significant percentage of most project budgets, especially in refurbishment-heavy markets such as London.
Contractors already balancing higher material costs, stringent new façade safety requirements, carbon-reduction measures and more complex temporary works design obligations now face another unavoidable rise. For many, the issue is not opposition to higher pay, but the lack of parallel support.
If labour costs rise without relief on employers’ NI, business rates or VAT on repair and maintenance, some firms will have to scale back hiring or limit wage progression above the minimum.
Regional Mayors to Gain Power Over Tourist Tax - Impact on London Construction
Alongside wage rises, the government confirmed that English regional mayors will be able to introduce a tourist tax on overnight stays. For London, where Sadiq Khan has already expressed cautious support, this opens the door to a revenue stream that could influence hotel development, refurbishment cycles and hospitality-led construction.
If introduced, even at a modest rate, this tax could shift investment decisions, delay some schemes, or accelerate others aiming to lock in designs ahead of policy changes.
A Challenging but Defining Moment for the Sector
For construction, 2026 will be a year defined by high operating costs, a tightening regulatory landscape and shifting project economics. While the minimum wage increase will unquestionably help many workers facing high living costs, it will also test the resilience of SMEs, subcontractors and labour providers across the industry.
Firms that adapt early, by revising pricing models, improving productivity, leveraging digital tools and reassessing workforce planning, will be best positioned to navigate the next phase.
