The National Living Wage Increase

Matthew Hickford, Marketing Manager at Westray Recruitment Group, on the increase to the national living wage and what it means for business.

The National Living Wage is increasing by 51p p/hr (up to £8.72 p/hr) for all workers over the age of 25 and 50p p/hr (up to £8.20 p/hr) for all workers aged 21-24. That’s roughly an extra £1,000 per year, per individual. With an estimated 20% of working people living in poverty, (Institute for Fiscal Studies, 2019) it’s undeniable that this increase is overdue, deserved and most importantly, absolutely necessary.

Workers deserve a fair share of the wealth they create and nobody who goes out to work should be unable to heat their homes or put food on their tables and although short of the £9 p/hr promised by George Osborne in 2015, we congratulate the government for legislating it.

However. As positive as the news is for individuals, we must also consider the impact of this increase on our clients and businesses who’re responsible for finding the extra cash without any (current) government plans to offset this cost with reductions elsewhere. Unfortunately, a lot of the types of companies hit hardest by the increase, retailers and those in FMCG or Logistics, are the industries that have suffered most of late so this may be the proverbial straw that breaks the camel’s back for some businesses.

We may not see the effects of this immediately and it may be two or three years before the impact can be adequately analysed. Of course, it’s also worthy of note that the increase isn’t going to be of much use if businesses put prices up or make redundancies to fund the increase in their wage bill.

Other staff too, deserve a mention. What about those assistant managers/supervisors in retail, or line leaders/supervisors in manufacturing or logistics who earn 10p-15p per hour more than the new rate of £8.72 but historically benefitted from a bigger gap to their team in recognition of experience, ability or increased responsibility. They’re not legally entitled to an increase but most of their extra pay in return for their extra responsibilities is eroded by the increase for those on minimum wage. Even IF their employer can offer an increase to them, will they if they’re not legally required to? Will those staff jump from the smaller businesses who can’t or won’t offer an increase and move to a larger business who can and will?

The war for talent at this level is going to begin all over again and chances are, the larger businesses who benefit from the economies of scale, are going to win.

We may even see a shrinking of the labour market as companies come to terms with the increase and fewer staff move. Where previously a call centre agent earning £8.21 p/hr might move to a competitor for £8.40 p/hr, a) they no longer need to and b) the willingness or ability of competitors to move beyond the new rate of £8.72 p/hr might be severely limited. As a result, a level of parity in pay not seen before might be in place for at least the next 2-3 years, in which case the employer and job will be the prime motivator for moves, rather than an pay increase. We’ve written previously on the topic and you can read it here.

We spoke with a key client of ours in the packaging & logistics sector who have a core element of minimum rate staff.

The business began budgeting for this last year when in fact, the forecast rate was 10p lower per hour than the one actually coming into effect on 1st April. Luckily for them, the company agreed a rate of £8.80 to come into effect so for the first time in a few years, they’ll be slightly ahead albeit by a lower margin of 8p p/hr rather than the 18p p/hr which would have afforded them a competitive advantage in the recruitment of staff.

They also highlighted concerns that whilst staff will be paid more, their supplier prices may go up as smaller businesses seek to cover the wage increase. This could in turn lead to the closure of smaller businesses and the redundancy of their staff.

Companies may also seek to invest further in automation to eradicate the ever-increasing cost of human labour, meaning we all need to be more flexible around retraining and learning. We’ve written on the subject previously

In the long run then, we’re facing uncertain repercussions and as highlighted above, there may be a collective tightening of the purse strings aside from the legal requirement to pay more.

Westray Recruitment Consultants are proudly family-owned and run and have served the recruitment needs of businesses and inhabitants of the North-East for almost 30 years. We are delighted to be headline sponsors of People Power 2020 and are passionate advocates of the key themes of the event.