Resolution Foundation plays down fears over national living wage
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Version 0 of 1. UK employers will see their total wage bill rise by only 0.6% under the new “national living wage” – but the impact will be much bigger for a handful of industries, including retail and hospitality, according to a report. The Resolution Foundation thinktank also found that small businesses with fewer than 10 employees face the biggest increase in their wage bill under the new minimum pay rates announced in George Osborne’s summer budget. The chancellor’s flagship policy will usher in a 50p increase in the statutory minimum pay rate for the over-25s from April, to £7.20 an hour, followed by a series of stepped increases expected to take the rate above £9 an hour by 2020. Campaigners for fairer pay have welcomed the changes, but some employers, including Costa Coffee owners Whitbread, have warned they will have to cut jobs and hike prices to cope. The Resolution Foundation, whose work on the future of the minimum wage was cited by the chancellor when he announced the policy in July’s budget, says around one-in-four workers can expect to benefit from the new wage floor. The thinktank calculated that the total wage bill will increase by £1.5bn, or 0.2% in April 2016, rising to £4.5bn, or 0.6%, in 2020. But, mirroring the recent reactions to the policy from retailers and leisure sector companies, its report highlights how the impact will be much bigger in certain sectors where low pay is more prevalent. “Pay rises don’t come for free, and the expected rise will take the wage floor into uncharted territory. But with the economy getting stronger the vast majority of employers should be able to afford the new higher wage floor, which will allow their lowest paid staff to share in the recovery,” said Conor D’Arcy, policy analyst at the Resolution Foundation. “Past warnings about the negative effects of the minimum wage on employment have been wide of the mark, but the size of the increase in the new wage floor will certainly be challenging in sectors such as hospitality, retail and care.” Who benefits? Around 2.9 million employees benefitting from the national living wage – almost half of those affected – work in industries where the wage bill is expected to increase by 0.6% or less, the Resolution Foundation report found. Those include education, health, manufacturing and construction. However, within health, the residential care sector would see a 2.8% rise in the wage bill. A further 2.7 million employees who are set to receive a pay rise work in hospitality, retail and support services, such as cleaning. A far greater proportion of workers in those sectors would be affected, the report said. For example, almost half of all hospitality workers would benefit by 2020 and employers in the sector would be hit by the biggest wage bill increase, at 3.4% by the end of the decade. The report found that micro-businesses, with up to nine employees, would face a 1.5% rise in their wage bill, while large employers, with 250-4,999 employees, would see theirs rise by 0.6%. The findings will add further fuel to the debate over whether a higher minimum wage for the over-25s will cost jobs and raise inflation. Last week, Whitbread, which runs the Premier Inn hotel chain, said it was looking at ways to offset the cost of the pay rise for more than 15,000 staff. It said it planned to make “some selective price increases” and “efficiency savings” to mitigate the cost of the national living wage. JD Wetherspoon founder Tim Martin warned the new pay policy risked further pub closures, especially in less affluent areas, while one of Britain’s largest recruiters, Manpower, said that the new pay rate is sending “shockwaves” through the labour market, with employers scaling back plans to hire staff. John Cridland, the outgoing director general of the CBI business lobby group, has described the plan to raise minimum pay as “laudable” but still a “gamble”. The Resolution Foundation cautioned about reading too much into warnings about job cuts and said improving the UK’s productivity performance would be essential to make the national living wage affordable. “It’s not yet clear how employers will respond but, while some may opt to reduce hours or new hires, past experience tells us that most absorb the pressures via some combination of small increases in prices, a dip in profits and productivity gains,” said D’Arcy. |