Significant increases to the National Minimum Wage (NMW) and National Living Wage (NLW) could have a devasting effect on the sector, those in the industry have argued.

It has been reported that Chancellor Philip Hammond is considering proposals to increase the NMW rate to up to 66% of median earnings, post its current 2020 targets, as the Government seeks to eradicate low pay. While Jeremy Corbyn has claimed Labour would extend its £10-per-hour minimum wage policy to under -18s, should it take power.

“Politicians have to wake up and smell the coffee – something has got to give,” said Patrick Dardis, chief executive of Young’s. A fair wage for everyone is a good thing he says, but while Young’s wants to pay its staff as much as is feasible he said the Government’s thinking on this issue was not joined up and that it needs to look at the bigger picture.

“If we are taking about a minimum wage of say, £10 per hour, that in itself is doable. However, prices and inflation will rise as a result, and the impact on other costs, such as business rates, auto enrolment, and the apprenticeship levy, make it all very difficult,” he said. “All you need to do is look at the car crash on the high street. The reasons are obvious, but Government’s response to business is ‘we want more’. It is absolutely shocking.”

Eddie Holmes, managing director of salad chain Chop’d said he agreed in principle with the minimum wage being put up but said it cannot be done in isolation. “You have to have the right level of remuneration otherwise you won’t get the talent,” said Holmes, but added that it’s tough to pass these costs on to the consumer as the economy is too fragile.

“If they do try and increase it significantly, then there has to be some kind of discount on employer’s NIC and pensions contributions, so the net effect to businesses is that they don’t actually suffer,” he said.

Although tackling low pay is “a clear headline ambition” for the Government, there are currently no detail as to how or by when that might be achieved, said Kate Nicholls, chief executive, UKHospitality, who urged caution on the scale and pace of changes. Hospitality is currently the fourth largest sector employing workers on the NLW (246,000 people), and the largest employer of workers on the NMW (101,000).

She said that, aspirationally, the trade body shares the ambition of reducing low pay, not just for the benefit of staff, but also of customers, but said that any increases need to be sustainable, and the pace of any increases need to take into account the broader economic circumstances and what’s going on in the labour market.

“The Government can set a long-term ambition, but we don’t want any artificial deadlines that would impose unnecessary costs on business,” she said. While the effect on businesses would depend on when these higher rates were brought it, Nicholls said that is there was a rapid move towards a £10.50 or £11 per hour rate “it could have a significant impact”, on employment and would slow the rate of job creation.

Nicolls said it was very difficult for operators to put prices up to take into account these extra costs. “Instead, we are seeing operators take steps to adapt their employment practices in order reduce the overall cost to the business,” she said. “We are seeing people choosing to cap hours in order to keep the pay bill the same. We are also seeing staff voluntarily choosing to limit their hours because of the interaction with benefit system.”

She said that in order to mitigate the impact of increases to the minimum wage, the Government needed redress the balance - “it shouldn’t be viewed in isolation”. “If they doubled the employers NIC threshold, so it was equivalent to the PAYE threshold, it would help employers to directly fund increases in the NLW wage and fund maintenance of differentials,” she added.

“If the gov wants to prioritise delivering an ambition on pay it needs to put the brakes on in terms of other regulatory costs. NLW and NMW rates alone can’t do all the heavy lifting to eliminate low pay,” said Nicholls.

Increasing employee productivity is key

Greggs chief executive Roger Whiteside said the key to coping with further rises was to boost employee productivity. “The highest cost we have in our business is labour and therefore if that cost keeps rising we have to get more and more inventive around how we become more productive and drives sales to pay for that,” he said. “It is a good thing to be paying employees more but we need to keep that in step with the market place and employees need to be more productive in order for the economics of that to work.”

Heydon Mizon, joint MD at McMullen, explained that rising taxation was impacting its decisions with regard to wage levels and labour hours. “Since the Brexit announcement we have seen labour rates increase by 8% and this has rippled throughout the business as we try to maintain wage differentials between each tier of team, many of whom are earning above the median pay level,” he said.

Mizon added that if minimum wage levels are to go up, the Government must shoulder some of the burden. “We pay just under £2m in employer NICs and the Apprenticeship Levy and would, in a flash, pass the full benefit of any reduction in this to the employees with a proportional additional increase funded out of the shareholder pot,” he said.

Meanwhile, Brigid Simmonds, chief executive of British Beer & Pub Association said it was important that pubs were not seen as low pay employers, and that as an industry it was very supportive of the NLW and NLW, but that with labour costs making up 14-25% of a business’ overall operating costs, pay has to be seen in the context of other pressures on the sector.

According to the latest data from Fourth Analytics, the average hourly rate for over 25 years is £8.43 – 22p more an hour than the NLW, and the same for 21 to 24-year olds – 73p more, while the average rate for 18-20 year olds is £7.86 – £1.71 more.

“The NLW went up 4.9% and the NMW (21 to 24-year-olds), by 4.3% this April. I don’t know of any employer that would be implementing those sorts of rises across the board,” she said. There is also the problem of differentials, added Simmons, with those working just above the threshold for the NLW then also expecting an increase of that scale. “That’s not just sustainable for many businesses,” she said.

Mark Robson, managing director of Red Mist Leisure, said he believed most people in the sector, himself included, were in favour of a progressive minimum wage that rises each year, broadly in line with inflation. “If the Government were to medal further by forcing rises that are significantly higher than inflation, it will, without a doubt, have a devasting effect,” he said.

“It is hard to swallow the current increases we face each year and we are all looking to try and mitigate this in other areas as they simply cannot be passed on to customers in full especially when consumer confidence is fragile,” he added.

Precis

 

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