Low Pay Commission 'must act with caution' over future wage rates

Submitting evidence to the commission’s consultation on the subject, ALMR chief executive Kate Nicholls called on the LPC to exercise caution on future rises in the national living wage (NLW) and national minimum wage (NMW).

Nicholls cited increased business costs, tightening margins and continued political instability as reasons to avoid wage increases that could undermine investment.

“We are seeing unprecedented cost pressures eroding eating and drinking-out margins, and significant increases could threaten investment and put jobs at risk,” she declared.

“Employers have already had to swallow a significant wall of costs in the form of recent wage increases and continually mounting property costs. Any considerable wage increases could seriously limit the sector’s ability to invest in sustained job creation, training and growth.”

Economic outlook

The consultation, which closes tomorrow (Friday 7 July), is seeking evidence on the NLW, the rate applying to workers aged 25 and over, and will examine a number of areas including the impact of past increases in the NLW on workers, employers, the labour market and the economy, including how firms are adjusting and how pay, terms and conditions, income, hours, employment, investment, productivity, prices and profits have been affected.

It will also review evidence on the economic outlook following the vote to leave the EU, including effects on the labour market and workers such as a weaker currency, higher inflation, and possible changes to labour supply, as well as views on the affordability and effects of possible future increases – a rate in the range of £7.80-£7.91 has been projected for 2018. 

“Businesses in the sector are committed to developing their workforces, but recent increases in wage rates have not led to increased spend at tills for businesses. Some employers have had to adjust the number of hours they offer staff as a result of increased wages,” Nicholls continued.

“With uncertainty around Brexit providing only uncertainty for businesses, now would not be the time to drastically increase wage rates. The Low Pay Commission should act with care if it wishes to avoid risking future investment and jobs in the UK.”

Further costs

Brigid Simmonds, chief executive of the British Beer & Pub Association, which is also submitting evidence, said: “We will be pointing out that the NLW cost the industry around £34m per year in 2016 and, in many companies and individual pubs, there have been further costs in increasing wages for other staff as a result.

"The increase to £7.50 this year adds a further £52m to the bill, giving a total additional staff cost of £86m over the first two years of the NLW – or around £1,600 for every pub in the UK.”

Simmonds claimed that Brexit uncertainty, access to labour and ‘significant new costs in other areas’ such as the 4% rise in beer duty, were also adversely affecting the industry.

“Auto-enrolment pensions, business rates, and the apprenticeship levy rate are also having an impact now and will continue to do so, and these factors all need to be fully taken into account when setting NLW rates,” she said.

Concern for jobs

Peter Urwin, professor of applied economics and director of the Centre for Employment Research at Westminster Business School, warned there was increasing concern for jobs in certain sectors.

“By 2020, the Low Pay Commission suggests that the NLW may be at a level that is 90% of the median for workers in retail, and at the median for those in cleaning and hospitality; nearly one fifth of all private sector jobs could be paid at this minimum level,” he said.

“The NLW aims to achieve a relative living standard for the low paid, with no explicit consideration of the likely impact on jobs – in contrast, decisions over the NMW aim to help the low paid ‘without damaging employment prospects’.

"However, if we really want to help those in low-paid employment, there needs to be increased spending on opportunities to re-train, raising productivity to a level that justifies hourly rates suggested by the NLW.

"Where this does not happen, we can expect more benefits to be paid out following low-skilled job losses. As in many areas of current policy debate, a desire to help the disadvantaged in society, probably implies less take-home pay for workers on median incomes (as taxes increase).”