National living wage rise under fire from government advisers

Future hikes may be softened if economic conditions do not improve, says Low Pay Commission

Some redundancies have already been reported as a result of April’s introduction of a national living wage (NLW) – and more are expected, a key report has found.

The Low Pay Commission’s (LPC) Autumn 2016 report said employers in some sectors had made job cuts since the pay legislation came into force earlier this year.

All workers aged 25 or over must now be paid the NLW of £7.20 an hour, unless they are at the start of an apprenticeship. This was an increase on the existing national minimum wage of £6.70 for over 21s, although that rate has since risen to £6.95.

The NLW is set to rise further, to £7.50 in April 2017 and, on current estimates revealed in the LPC report, to about £8.60 by 2020.

“For businesses with wage bills unaffected by the introductory rate of the NLW, there was little reported impact on employment so far,” said the LPC study.

“In more exposed sectors, employer representatives reported cases of reduced hours, employment growth and (less frequently) redundancies, warning that these were set to grow as the rate increased over time, with the biggest reported effects in convenience and traded sectors such as horticulture.”

The commission, which advises the government, added that it may in future recommend measures to soften rises in the NLW to lessen the threat to jobs.

“For 2018, the HM Treasury Panel and Bank of England forecasts imply an NLW within an interquartile range of £7.80 to £7.91,” said the report.

“A material worsening in economic performance and prospects would lead us next year to consider whether to recommend that the NLW should not increase relative to median earnings, moving below a straight-line path to 60 per cent in 2020, to safeguard employment.”

The commission found a lack of readiness from employers to tackle the higher wage rates coming their way over the next few years.

“Most respondents had yet to work out how they would accommodate the NLW through to 2020, but planned short-term responses tended to involve pay consolidation, higher prices or reduced profits, with firms reportedly avoiding job losses or introducing lower pay for younger workers, where they had not previously used the existing youth rates of the minimum wage,” said the report.

“Survey evidence suggested many employers were interested in raising productivity, though with few specifics given.”

In August, the CIPD’s Labour Market Outlook found that only 13 per cent of businesses felt the NLW would have a ‘large’ impact on their wage bill, and 46 per cent predicted no effect at all. http://www.cipd.co.uk/Images/labour-market-outlook_2016-autumn_tcm18-16528.pdf

But the UK Homecare Association now says the NLW made it harder for social care providers to reward more experienced workers, exacerbating pre-existing retention problems and adding to staff churn.

However, one study that used pay data from adult social care providers in England found no evidence that hours had been reduced to offset NLW costs, the LPC noted. Another found that the proportion of care homes saying the NLW was too high dropped from 38 per cent to 21 per cent once it came into force.

Meanwhile, the OECD this week said that job creation had “moderated” in the UK and future hikes in the NLW should be reviewed.

“Caution is needed with the implementation of the policy to raise the NLW to 60 per cent of median hourly earnings by 2020,” said the body in a report.

“The effects on employment need to be carefully assessed before any further increases are adopted, especially as growth slows and labour markets weaken.”

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