George Osborne has announced a new, compulsory national living wage for everyone over the age of 25. It will replace the minimum wage and come in at £7.20 in April 2016, rising to more than £9 by 2020. Here’s how the industry and key commentators have reacted to the move.

The British Retail Consortium said retailers would look closely at today’s announcements to assess their impact but stressed the retail industry was not a minimum wage employer. “Median wages for hourly paid workers currently stand at £7.30 per hour – this is already above the rate of the new National Living Wage announced today,” said director general Helen Dickinson.

“We welcome the fact that the task of outlining a route map to bringing the National Living Wage to 60% of median income has been given to the Low Pay Commission (LPC). The LPC has always worked well with both employers and employees in making its recommendations and we look forward to working with them in plotting the course to higher basic wages.

”We continue to believe that the real key to raising more people out of low pay will rest in increasing productivity. This will be more effective than playing pass the parcel around the economy with the financial burden of increasing people’s incomes. It is crucial that Friday’s productivity plan addresses the issues faced by retail businesses and creates a sustainable route to higher incomes.”

Sainsbury’s said it was already paying staff more than the minimum wage, with its basic rate of pay currently at £7.08. ”We are currently exploring what our pay review will be for September but it has been in the region of 2-3% for the past three years,” a spokeswoman said. ”In addition to a rate per hour, we also give colleagues a broad package of benefits which include a pension, life insurance, paid breaks, annual bonus and a discount card. We believe in rewarding our colleagues fairly for the great customer service they provide in our stores and will of course comply with legislation to reach the new national living wage of £9 an hour by 2020.”

The Food and Drink Federation said it supported the national living wage “in principle” and many food and drink manufacturers had already made individual commitments to pay the living wage. “It is important, however that the direct impact on the thousands of small and medium-sized food businesses is minimised to ensure the future competitiveness of the food and drink manufacturing sector,” said director general Ian Wright. “The counterbalance of a reduction in corporation tax and National Insurance contributions will go some way in helping food and drink manufacturers to manage this change.”

The Association of Convenience Stores warned the new living wage was “a reckless measure” that would have a bad impact on convenience stores. “The introduction of a compulsory ‘Living Wage’ will have a devastating impact on thousands of convenience stores,” said ACS chief executive James Lowman. “This will lead to retailers having to reduce staff hours, work more hours in their business and ultimately cancel their investment plans. To introduce this measure with no consultation undermines the independent Low Pay Commission and is a reckless way to impose a massive burden on small businesses.”

Mike Kelly, head of Living Wage at KPMG, said the announcement was “welcome news” for the working poor. “Enshrining the Living Wage in regulation is a brave move and by 2020 the National Living Wage will reach 60% of median earnings. For employers who are concerned at whether the increased payroll costs will be fully offset by reduced corporation tax and national insurance contributions, our experience has seen lower absence, increased productivity and a more engaged workforce.”

Simon Rice-Birchall, a partner at law firm Eversheds, said it the new national living wage raised important questions about the role of the Low Pay Commission. “The LPC as an independent body conducts extensive research into the annual report it submits to government setting out its recommended level of national minimum wage, the last figure of which was £6.70 per hour. Whilst the Chancellor made express reference to the LPC taking responsibility for rises in future, there was no such reference to its participation in the fixing of the new figure.

”One can’t help thinking, therefore, that whilst a boost to earnings levels, if the government is not careful it will be seen to undermine an independent, external advisory body on the basis of political gain, not collaboration and independent research.”

Janette Lucas, employment partner at law firm Squire Patton Boggs, said retailers would find it challenging to balance paying the new living wage with a financial environment that remained tough. ”As the new living wage replaces the national minimum wage for all workers aged over 25 with effect from next April, retailers will need to consider carefully how they implement this change within their organisation, including assessing the knock-on effect it is likely to have in terms of their existing pay scales, pension costs and other employee benefit schemes.

“By enshrining the living wage in law, this government has compelled businesses to implement a potentially significant pay rise for certain of their employees. There will inevitably be a period of adjustment between now and April next year during which retailers work through how they balance the books once this additional cost and the knock-on effects it has on wider pay and benefits into account. There are unfortunately a limited number of ways of doing that and this could potentially result in employers having to make changes such as reducing or even stopping bonus payments and cutting back on other employee benefits, particularly discretionary benefits which may be meaningful in value but which do not ‘count’ for the purposes of the living wage. Such changes could themselves lead to complaints from disgruntled employees elsewhere in the business. This is something retailers will of course need to consider carefully, particularly given the phased increase in the rate of the living wage.”

Analysts at Shore Capital said the new mandatory living wage could prove “a major challenge” for large employers such as supermarkets. ”Clearly the attractiveness of the young in the labour market will grow; we also note that a levy to fund apprenticeships will be applied on larger companies. To return to points made above, the imponderable item is how much of the higher pay will be recycled back through the tills of the retailers and what all of this means for pricing strategies (i.e. inflation); note that the NLW is a tidal process and should not favour one type of company over another.

”From an earnings per share (EPS) perspective, some of potential pressure to post-tax profits from higher labour costs, will be mitigated by the lowering of the Corporation Tax, which will be cut to 19% in 2017 and 18% by 2020. We will watch out with interest to learn the views and guidance of the major supermarkets.”

The British Beer and Pub Association said it was pleased to see the tax cuts in today’s budget, given the likely impact of the new living wage. “Some of the measures, such as the Living Wage and reductions in tax credits, will have a knock-on effect on the cost of employment for pubs, so the tax cuts announced today are a welcome and necessary balancing measure,” said CEO Brigid Simmonds.

The Federation of Small Businesses described the budget as “a mixed bag” for small businesses. The new living wage in particular could prove difficult, it warned. “Even though offset by a welcome increase in the employment allowance, some will find the new National Living Wage challenging,” said national chairman John Allen.

The Office for Budget Responsibility said there was “significant uncertainty” around the impact the new living wage would have. “The response of firms and the impact on the labour market are subject to significant uncertainty,” it said in its response to the budget. “We have assumed that the increased labour costs will lead to a reduction in total hours worked of around 0.4 per cent – split equally between reduced average hours and around 60,000 fewer people in employment. But we have assumed a smaller reduction in total output of around 0.1 per cent, since the reduction in hours worked will be concentrated among people earning lower wages.”

Political reactions

The Labour Party’s acting leader, Harriet Harman, said she was concerned Osborne’s living wage announcement was a case of “giving with one hand and taking away with the other”. She said “without tax credits, even the living wage is not enough for a family to live on. And when it comes to tax cuts, we support a rise in the personal allowance and the higher-rate threshold. But we will look at the detail to make sure he is not up to his usual trick of giving with one hand and taking away with the other.”

Caroline Lucas of the Green Party “cautiously welcomed” Osborne’s promise of higher wages but criticised the welfare cuts put forward in today’s budget.

The Living Wage Foundation

The Living Wage Foundation welcomed Osborne’s announcement as a “massive victory” for Living Wage campaigners, but said it also raised several questions which it would seek to address with the Chancellor. “The Living Wage is calculated according to the cost of living whereas the Low Pay Commission calculates a rate according to what the market can bear,” said director Rhys Moor. “Without a change of remit for the Low Pay Commission this is effectively a higher National Minimum Wage and not a Living Wage.

“Secondly, what about London? We have been working with the Mayor of London for seven years and there’s a London Living Wage rate that recognises the higher costs in the capital, currently £9.15 per hour. These changes will not help the 586,000 people for whom even the 2020 rate announced today would not be enough to live on now.

“Thirdly, what about the 2 million under-25s who are not covered by this announcement? To make sure workers in London and those under 25 do not lose out, we call on employers to join the group of 1,600 organisations that have already chosen to become voluntary Living Wage employers.

“And, lastly, do the tax credit changes announced today mean that the Living Wage needs to be higher to make sure people have enough?

You can find the key points of the Conservative government’s summer budget here. 

 

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