As businesses face ire for cutting overtime and benefits, two experts explore the fallout
Dire predictions of widespread job losses when the national living wage (NLW) came into force in April always seemed outlandish – and a July study by the Resolution Foundation suggested that increasing prices or simply absorbing the extra cost was a far more frequent response than reducing the workforce.
But several employers – among them B&Q (subject of a nationwide petition), Tesco and Morrisons – have chosen to cut overtime pay rates, remove premiums for weekend or evening work, or end meal allowances and other perks in recent months.
M&S is the most recent business to become embroiled in the row, having announced plans to change pay rates for anti-social hours and bank holidays, as well as reducing pension contributions, in a move that could affect up to 11,000 staff. Like other companies targeted by campaigners, it claims its reward rethink is unrelated to the introduction of the NLW. But do such actions go against the spirit of the new wage?
YES: Siobhain McDonagh, MP for Mitcham and Morden
The NLW is supposed to help people, not harm them, yet I’ve spoken with several constituents who have told me they will be worse off because of how their employers are responding to it.
One has calculated that he could take home £2,600 less per year because of his employer’s proposed cuts for working on Sundays and bank holidays. He only earns around £15,000, so this will really hurt him.
It’s just not ok for companies to treat people with such little respect. The NLW was brought in to make people’s lives better and to reduce the burden on the taxpayer; employers that find ways to pay their people less in one area so they can pay them the £7.20 basic hourly rate are going against the spirit of the law, if not the letter.
I don’t want to create the impression this is just about one particular company, either. It’s a much wider problem: Tesco, M&S, Caffè Nero and Eat are just a few of the businesses whose staff are telling me their perks and benefits are being cut in return for being paid the NLW. People in other sectors, such as food processing and hospitality, are facing the same problem. Some lose cash in the form of reduced hourly rates for weekends, while others are finding they are no longer offered paid breaks or a free sandwich at lunch.
It’s not good enough for employers to make excuses about the added expense of paying people more. George Osborne cut corporation tax to make up some of the extra cost – although admittedly that might not help B&Q, as it didn’t actually pay corporation tax last year.
I’d ask any company that says reducing the wages of its lowest-paid people is the only option to think again. It should start by asking itself whether any cuts are being made away from the shop floor. Has the chief executive seen his or her pay cut? Have the directors been told to bring their own coffee with them to meetings, even at weekends?
And I’d like to challenge the idea that employees who don’t like the fact they are losing pay in the name of the NLW can leave and find work elsewhere. That’s a nice thought, but in plenty of parts of the UK there either isn’t any other work, or it is offered under equally unfair terms. That’s why it is up to all of us to make sure the NLW does what it’s supposed to.
NO: Bryan Johnston, senior external affairs adviser at the British Retail Consortium
The UK retail industry is the first to acknowledge that low pay is an issue in the sector – that’s why it welcomed the introduction of the NLW.
But that doesn’t mean that all operators can simply afford to start paying all adults their old incentive rates as well as the new hourly wage of £7.20 – much less the £9-plus rate expected by 2020. The context in which employers operate means this is difficult and they need to moderate the effect. To do that, they are examining all cost centres, including, but not limited to, staff pay.
What is that context? Profit margins have been falling since the financial crisis, from around 8 per cent to as low as 2 per cent. Competition is intense from other traditional players and new online arrivals, while the UK’s economy has recently celebrated – if that’s the right word – its 37th consecutive month of shop price deflation. Business rates are in desperate need of reform.
You only have to look at the number of companies that have struggled or gone under in recent years to see what effects this kind of pressure can have. Add in the NLW, which will cost the sector between £1.5bn and £3bn extra every year, and it seems like something may have to give.
Research so far suggests that some employers are absorbing the cost, or passing it on to customers through price rises, but these are difficult choices, particularly in our sector. Profit margins are already so thin there’s little give left, while no one wants to make customers pay more – it could mean losing them to competitors that decided not to raise their prices.
And of course, losing customers can in turn threaten both a retailer’s financial stability and its ability to continue employing people in the same numbers. For all these reasons, it is critical for retailers to ensure any decisions they make about pay will contribute to their short- and long-term success.
Not that this means people are a secondary concern – far from it. Employers know that engaged, positive staff are better for them and better for customers, and that unhappy employees could seek work elsewhere, leaving them with vacancies to fill. This means they will take into account the need to ensure their people are incentivised and rewarded appropriately when making decisions about pay. For instance, many retailers are paying the NLW to people aged 21 and above even though legally there is no obligation to do this until they turn 25.