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National living wage to have modest impact

The impact of the incoming introduction of the national living wage (NLW) will be minimal in most industries, according to analysis by the Resolution Foundation.

The new, mandatory NLW is due to replace the existing national minimum wage from April 2016 for workers aged 25 and over and will initially be set at £7.20 an hour. It is then expected to rise to over £9 by 2020m which will increase the total wage bill to £4.5 billion.

The total wage bill is expected to increase to 0.6% across the whole economy. While this will have a minimum effect in most industries, the Resolution Foundation found that the impact on hospitality, retail and support services will be more pronounced. These sectors have more workers subject to the rise in pay.

The hospitality sector will see a 3.4% increase in its wage bill by the end of the decade, which is likely to be the biggest seen by any sector. However, due to the high amount of workers aged under 25 working in the sector, half of hospitality workers will be paid the NLW or less.

The fiancial consequences for employers will also be dictated by company size and whether it is public or private sector. Micro-businesses could face an average wage increase of 1.5% whilst large employers will see a 0.6% rise. Similarly, the average increase for companies in the private sector will be 0.8% compared to a 0.2% rise in the public sector.

Conor D'Arcy, policy analyst at the Resolution Foundation, said:

"The NLW will give a welcome wage boost to 6 million workers. Pay rises don't come for free, and the expected rise will take the wage floor into unchartered territory.

"Past warnings about the negative effects of the minimum wage on employment have been wide of the mark, but the size of the increase in the new wage floor will certainly be challenging in sectors such as hospitality, retail and care.

"It's not yet clear how employers will respond but, while some may opt to reduce hours or new hires, past experience tells us that most absorb the pressures via some combination of small increases in prices, a dip in profits and productivity gains."

Get in touch with our team today to discuss the NLW.