Managing the fall-out from the National Living Wage

25 February 2016 -


Chancellor George Osborne surprised everyone when he announced the new National Living Wage in his Autumn Statement, here, Professional Manager looks at how businesses are reacting, and what the future could hold

Mark Crail

Not since Benjamin Disraeli extended the vote to millions of working men in 1867 has a Conservative government so blatantly stolen the political clothes of its opponents as George Osborne did with the National Living Wage.

Millions of people are set to benefit from a pay rise of 50p an hour from April 2016. It’s not a fortune, but an extra £1,000 makes a difference when your annual salary is less than £14,000 – especially after years of below inflation pay rises.

To say the announcement caused surprise is an understatement.

Even the Low Pay Commission, which tells the government at what level it should set the National Minimum Wage, knew nothing until the Budget speech: interesting since Osborne also announced the Commission would be advising on how to raise the rate from £7.20 to £9 by 2020.

Business responded with shock – especially in the low-paying care, retail and hospitality sectors.

Tim Martin, chairman of JD Wetherspoon, complained that the rate seemed to have been set by “Osborne and Cameron having a pint somewhere in Whitehall and coming up with a figure”.

Others have done better in finding a public relations angle, raising pay rates now rather than waiting until April, or extending the deal to workers under 25. A relative of mine recently took an entry-level job with a big retailer at £7.21 an hour, presumably so the company can claim – if a little creatively – that it pays above the National Living Wage.

The dividing line between those who argue for and against paying people enough to live on may not fall where you think.

When Costa Coffee warned of raising prices, Simon Walker, director general of the Institute of Directors, responded, “My Starbucks this morning cost £2.90 – I think there is some room in there for increased pay.”

Of course, this is really about George Osborne redrawing the boundaries of the state, offsetting (to a small extent) reductions to in-work benefits.

But how will businesses really be affected? Every autumn we survey employers on pay. This time, just over 25% of 313 companies representing every industry, size and location of UK private-sector business, told us they would have to raise wages for some staff. Three out of four are not affected. Those having to adjust pay levels will, at the median, do so for fewer than 8.2% of employees. That is 3% of all employees.

Capitalism is not about to fall.

If I have any sympathy with employers, it is for those in the voluntary sector.

Charities have large numbers of employees in the care and retail sectors (those charity shops aren’t just run on volunteers) and consistently struggle to match pay rates in the private sector.

They also have few opportunities to edge prices up to cover the shortfall.

A third of 148 charities surveyed in XpertHR’s Voluntary Sector Salary Survey have staff eligible for a pay rise, making up 8.7% of the workforce. On average, it will cost £491 a head each year to meet the National Living Wage.

The major cost comes if charities try to maintain pay differentials for those earning just over £7.20 (say £8 an hour), for example when convincing low-paid workers to take on a supervisory role.

It means adding another £832 a year for a further 11.3% of the workforce. Few think they can fund that.

HR managers I speak to are generally supportive of the National Living Wage. A fair number think it should be set higher. But they are genuinely concerned that the burden will fall not on the coffee-drinking consumer but on those earning a tad above the legal minimum, whose pay rises will go instead to those on the lowest rung.

Mark Crail is content director at XpertHR. Share your views on the National Living Wage @InsightsCMI and @payintelligence

Powered by Professional Manager