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Retailers expected to raise prices or cut jobs to pay for minimum wage Retailers expected to raise prices or cut jobs to pay for minimum wage
(35 minutes later)
Britain’s retailers are likely to increase prices or cut large numbers of jobs to pay for the rise in the minimum wage announced in the budget, according to Moody’s, the credit rating agency.Britain’s retailers are likely to increase prices or cut large numbers of jobs to pay for the rise in the minimum wage announced in the budget, according to Moody’s, the credit rating agency.
Moody’s said the centrepiece of George Osborne’s first post-election budget was credit negative for retailers, hotels and restaurant groups, which have high employee costs.Moody’s said the centrepiece of George Osborne’s first post-election budget was credit negative for retailers, hotels and restaurant groups, which have high employee costs.
The chancellor announced last week that the minimum wage, now £6.50 an hour, would be recast as the national living wage and will rise next year to £7.20 for people aged over 25 followed by further increases to £9 by 2020. The chancellor announced last week that the minimum wage, now £6.50 an hour, would be recast as the national living wage and rise next year to £7.20 for people over 25 followed by further increases to £9 by 2020.
“Ultimately, we expect retailers to pass on high labour costs to customers,” Moody’s said. But in the cut-throat market for food retailing the supermarkets will have to find other ways to make the money back, the agency added. “Ultimately, we expect retailers to pass on high labour costs to customers,” Moody’s said. But in the cut-throat market of food retailing, the supermarkets wwould have to find other ways to make the money back, the agency added.
Sven Reinke, an analyst at Moody’s, said: “If the big food retailers could put up prices they would do it now but the market simply doesn’t allow it, so I’m sceptical that the large food retailers would be able to pass on 100% of the costs in today’s market. Sven Reinke, an analyst at Moody’s, said: “If the big food retailers could put up prices, they would do it now but the market simply doesn’t allow it, so I’m sceptical that the large food retailers would be able to pass on 100% of the costs in today’s market.
“When you go to a supermarket today you already see self-checkouts which have reduced labour intensive costs and I would expect that kind of automation to increase quicker than anticipated.”“When you go to a supermarket today you already see self-checkouts which have reduced labour intensive costs and I would expect that kind of automation to increase quicker than anticipated.”
The UK wage bill at Tesco, Britain’s biggest retailer, is about £4.5bn, which indicates that every increase of 1% to wage costs would cost the company about £45m. The first increase in the national minimum wage to £7.20 represents an increase of almost 11%.The UK wage bill at Tesco, Britain’s biggest retailer, is about £4.5bn, which indicates that every increase of 1% to wage costs would cost the company about £45m. The first increase in the national minimum wage to £7.20 represents an increase of almost 11%.
Though many of Tesco’s employees are on more than the minimum wage, the figures show that higher wages could cost the industry hundreds of millions of pounds a year. Tesco said last week it supported the national living wage. However, no major retailer pays the living wage as defined by the Living Wage Foundation, which is £7.85 an hour and £9.15 an hour in London. Though many of Tesco’s employees are on more than the minimum wage, the figures show that higher wages could cost the industry hundreds of millions of pounds a year. Tesco said last week it supported the national living wage. However, no major retailer pays the living wage as defined by the Living Wage Foundation, which is £7.85 an hour – and £9.15 an hour in London.
Reinke said he expected the grocery sector, which employs about 1 million people, to cut jobs.Reinke said he expected the grocery sector, which employs about 1 million people, to cut jobs.
“Just a percentage point reduction would have a material impact on the total numbers. I don’t think it’s unreasonable to expect that there would be a lot of job losses.”“Just a percentage point reduction would have a material impact on the total numbers. I don’t think it’s unreasonable to expect that there would be a lot of job losses.”
Other options for retailers to offset higher wage costs include reducing staff discounts and making pensions less generous, he said. Other options for retailers to offset higher wage costs included reducing staff discounts and making pensions less generous, he said.
The big supermarkets’ profits have been hit by tight household budgets and shoppers defecting to discount chains, led by the German grocers Aldi and Lidl. Moody’s said the national minimum wage was likely to favour the discounters because they already have lower labour costs. The big supermarkets’ profits have been hit by tight household budgets and shoppers defecting to discount chains, led by the German grocers Aldi and Lidl. Moody’s said the national minimum wage was likely to favour the discounters because they already had lower labour costs.
Related: Raising low pay is welcome. But we should still fear the forces hurting family incomesRelated: Raising low pay is welcome. But we should still fear the forces hurting family incomes
Supermarkets might start to behave more like the discounters by cutting their product ranges and displaying items in their boxes instead of arranging them on shelves, Reinke said. However, retailers could benefit from Osborne’s move because the national living wage will put more money into the pockets of shoppers, he added. Supermarkets might start to behave more like the discounters by cutting their product ranges and displaying items in their boxes instead of arranging them on shelves, Reinke said. However, retailers could benefit from Osborne’s move because the national living wage would put more money into the pockets of shoppers, he added.
A spokesman for the British Retail Consortium said retailers would absorb the first increase quite easily but that as the national living wage increased they would come under more pressure. A spokesman for the British Retail Consortium said retailers would absorb the first increase quite easily but , as the national living wage increased, they would come under more pressure.
“The potential is always there [for price increases] but the competitive nature of the market means it’s unlikely to be significant.” Retailers are more likely to seek greater productivity from existing employees than to slash jobs, he added. “The potential is always there [for price increases] but the competitive nature of the market means it’s unlikely to be significant.” Retailers were more likely to seek greater productivity from existing employees than to slash jobs, he added.
A Treasury spokesman said the budget was designed to move the UK away from low wages, high taxes and welfare, and that the national living wage was balanced by lower corporation tax and higher employer national insurance allowances.A Treasury spokesman said the budget was designed to move the UK away from low wages, high taxes and welfare, and that the national living wage was balanced by lower corporation tax and higher employer national insurance allowances.