IT’S LIVING Wage Week. David Burrows assess the impact of the government’s higher mandatory pay rate and how foodservice companies can find the extra money.
The association of Convenience Stores recently completed its annual survey of members. The results paint a bleak picture of business life when the national living wage (NLW) arrives in April next year:
- 62% said they would delay investment or expansion plans.
- 61% said they would cut staff hours.
- 58% said they would reduce the number of staff in their business.
- 40% said they would have to increase the number of hours they work in the business themselves.
“We are extremely concerned about wage rates being set for political reasons instead of being properly assessed by the independent Low Pay Commission,” said the ACS chief executive, James Lowman. Previous analysis by the ACS suggested that the policy has put 80,000 jobs at risk.
Others have sounded similar alarm bells about the Conservative government’s plan, which will see the national minimum wage (£6.70 per hour) replaced by the higher NLW (£7.20 per hour, rising to £9 by 2020) for those over the age of 25.
“We were very surprised the chancellor made this announcement without consultation,” said Ufi Ibrahim, the chief executive of the British Hospitality Association. “Despite the chancellor trying to alleviate the pain with adjustments to corporation tax and employment allowances, these changes do not go far enough to reduce the impact on SMEs and mitigate potential job losses.”
In September, an analysis published by the Resolution Foundation showed that hospitality will be the hardest hit by the policy with a 3.4% increase in the sector’s wage bill in 2020, twice that of any other industry.
But is all the talk of redundancies and closures realistic or merely hyperbole? Before the minimum wage was introduced in 1999, economists and politicians were likewise divided over its likely effect: the Conservatives, in opposition then, had been pushing fiercely against it, with predictions of huge job losses.
“The minimum wage didn’t actually have a severe impact,” explained Conor D’Arcy, a policy analyst for the Resolution Foundation. This should offer some comfort to those faced with a bloated wage bill next April, he said, but if truth be told “we don’t know what will happen. It’s definitely a big challenge for the hospitality sector so I wouldn’t be surprised that if we do see problems then they’ll start to emerge in that sector. However, employers are also more adaptable than we expect.”
The Financial Times suggested that businesses would find the extra money by raising prices, reducing profits, shifting economic activity abroad, substituting machines for workers, or encouraging the employment of younger staff who are not eligible for the new rate.
Many companies will be weighing up which tactics can work for them, but the paper’s analysis ignores the considerable savings that can be made through environmental improvements.
By the time the living wage is introduced next year, food waste could be costing foodservice and hospitality businesses £3 billion a year, according to WRAP. Experts at Ricardo-AEA have also calculated the vast energy savings possible in commercial kitchens, including £30m by changing cooking behaviour and £5.3m through improved dishwashing techniques.
Whitbread, which is expected to outline how it will mitigate the “substantial cost” of the NLW, has already confirmed that “efficiency savings” will be part of any plan. This from a business that has already introduced a “zero energy” coffee shop as owner of the Costa chain.
“A big shift in policy is the chance for businesses to look at their operations, what they are wasting and how they can cut back,” said D’Arcy. “These are things that firms worry about every day but this is the time to stop and look actually look at them.”
Some will see the shift in wage structures as an opportunity to go further and, as they reassess, commit to paying staff the “real” living wage. The government rate is based on median earnings while the Living Wage Foundation rate is calculated according to the cost of living. Ikea and Lidl have both recently announced that they will follow the foundation’s rate, which has just risen to £8.25 an hour outside London and £9.40 in the capital.
“It’s a nice marketing position for the likes of Lidl,” said D’Arcy, “and I think we’ll see others going above and beyond.” Foodservice and hospitality companies will undoubtedly find that a bigger gap to jump, however, with many focused on how to pay the lower living wage first.
