‘National living wage’ will push up wages at more than half of employers

The new “national living wage” will push up wages at more than half of all employers, forcing many of them to seek savings through improved productivity, reports The Guardian.

The survey, one of the first to test the mood among employers before the higher wage comes into effect next April, found that 54 per cent of respondents said it will have a material effect on their wage bill.

In response, three in 10 of those organisations affected are planning to recoup some or all of the extra cost by raising productivity, according to the survey by the Resolution Foundation and the CIPD, the professional body for personnel staff.

Conor D’Arcy, a policy analyst at the Resolution Foundation, said: “It’s encouraging that so many firms say that they’ll respond to the new higher wage floor by improving efficiency. But actually delivering this will prove challenging in many sectors, and it’s important that firms are given the necessary support to boost productivity.”

The national living wage is due to take effect from 1 April 2016 and will push up the minimum hourly rate for workers aged 25 or older from £6.70 to £7.20. George Osborne announced the move in his budget in the summer, effectively dictating to the independent low pay commission a new wage floor for UK workers.

Osborne won plaudits from anti-poverty groups that were critical of a shift among many employers to zero-hour contracts and lower wages to cut costs, though much of the goodwill established by the chancellor evaporated when it became clear he planned to save £4.1bn next year cutting tax credits from largely the same group of workers.

The survey of 1,037 employers shows that the higher wage floor will have its greatest impact in retail and hospitality, where over three-quarters of employers say their wage bill will be affected and around a third in each will be affected significantly.

More than two thirds of employers in the healthcare sector will be affected, though they are less likely to seek a rise in productivity. One in five public sector organisations said their answer to the higher wage threshold would be to make bigger cuts in staff numbers than previously planned.

Respondents were given the chance to nominate three methods they would use to compensate for the higher wage bill. More than one in five employers planned to accept lower profits; 16 per cent said they would reduce overtime and bonuses; 15 per cent said they would raise prices; while 15 per cent said they would reduce the number of employees through redundancies or slower recruitment.

The Office for Budget Responsibility, which assesses government spending policies, said the national living wage could result in 60,000 job losses.

The Resolution Foundation, which estimates that 6 million people will be affected, adding £760 annually to pre-tax wages, said employers were more reluctant to slow pay growth, reduce workers’ hours or switch to cheaper workers under 25 years old. Less than 10% of organisations opted for these tactics, it said.

Mark Beatson, chief economist at the CIPD, said: “The national living wage was a bombshell for most employers when it was announced in July. It comes into force next April, which does not give employers a lot of time to prepare. Hence we found 26 per cent of employers in September saying it was still too soon to say how they would manage the cost implications.

“For those that have started to think about the consequences, the emphasis on efficiency rather than cost-cutting is welcome. However, our research also suggests that only a small proportion of firms see any substantial connection between the national living wage and other changes to taxes and national insurance contributions.

“If the chancellor wants to provide any more support for businesses grappling with the national living wage in the autumn statement, it might be better delivered through enhanced business support or special help for the care sector rather than shaving small amounts off general business taxation.”