Supermarkets could increase prices to pay for living wage


The Telegraph reports that the Government’s new national living wage is likely to result in higher prices for shoppers, Moody’s has warned.

The minimum wage for over-25s is set to rise from £6.50 per hour at present to £7.20 in 2017 and £9 by 2020 under proposals announced by George Osborne in the Budget.

This increase in basic pay is “credit negative” for retailers, restaurants, hotels and leisure companies because of the cost of increasing pay for the hundreds of thousands of workers they employ, according to an analysis by credit rating agency Moody’s.

Staff account for roughly half of a retailer’s costs and large companies will have to stump up tens of millions of pounds to meet the living wage requirement.

A retailer employing 50,000 full-time staff at £7 per hour will have to pay an extra £21m a year to get to £7.20.

Maria Maslovsky, senior analyst at Moody’s, said the credit rating agency “expects retailers to pass on higher labour costs to customers” and also warned that retailers could reduce employee benefits such as staff discounters because they offer “room for manoeuvre”.

She added: “Operators in labour-intensive sectors such as supermarkets, hotels and restaurants are likely to be the most affected by the increase in minimum wage owing to the high proportion of wages in their cost structures.”

Ms Maslovsky said that discount retailers such as Aldi and Lidl “may be better off” because their business models are more efficient and they “employ fewer people for the same level of sales and thus would be less affected by labour cost inflation”.

She added: “Similarly, those with operations limited to the UK are likely to require greater adjustments than more internationally diverse players. Although retail outlets located in London will not be as severely affected owing to already high labour costs that exceed the current minimum wage, regional operations are likely to be more affected.

“Ultimately, we expect retailers to pass on higher labour costs to customers.”

Shares in Britain’s leading retailers fell on the day of the Budget as investors digested the proposals.

Publicly, retailers have given the Chancellor’s living wage a lukewarm backing, but privately they are frustrated at the lack of consultation over the measure.

In a statement, Tesco said: “At Tesco we know it is important to reward colleagues well, and that’s why we pay one of the highest hourly rates in retail.

“But we firmly believe in offering colleagues a total reward package and our benefits include a 10pc colleague discount, shares scheme and pension, which we know they really value.

“That said, in line with our approach of offering sector-leading pay and a generous benefit package to all colleagues, we are supportive of the introduction of the national living wage.”