Retail and hospitality industry insiders warned yesterday that their sectors face a huge rise in labour costs after a Tory pledge to introduce a minimum wage of £9 for over-25s by 2020.
From April next year, businesses will be required to pay £7.20 per hour to workers over the age of 25, rising to £9 by 2020, the chancellor said in his Budget speech yesterday, declaring “Britain deserves a pay rise”.
The new rate will replace the national minimum wage, which stands at £6.50 per hour for over 21-year-olds.
Living wage campaigners welcomed the measure, which will boost earnings for around 2.7m low wage workers.
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However, the Federation of Small Businesses said the move will pose “significant challenges” for small firms, particularly those in hospitality and retail, which account for two thirds of minimum wage workers.
Greater London Assembly (GLA) Tory member Tony Arbour estimated in November that a compulsory living wage could cost businesses £4bn.
The Office for Budget Responsibility estimated that the higher minimum wage could lead to 60,000 job losses as businesses struggle to meet costs.
Shares in supermarkets Morrisons and Sainsbury’s, which already struggling with hefty business rates bill and fierce competition, fell by 1.5 per cent and 1.1 per cent respectively.
“Our basic rate of pay is currently £7.08, which is considerably above the minimum wage,” Sainsbury’s said, adding that it also offers staff benefits such as a pension and life insurance.
Morrisons and Marks & Spencer, said they were examining the implications.
Shore Capital analyst Clive Black said: “The imponderable item is how much of the higher pay will be recycled back through the tills of the retailers and what all of this means for pricing strategies.”
The British Retail Consortium’s Helen Dickinson said: “Without seeing any more firm proposals on business rates, little in the statement will ease retailers concerns as they navigate the transformative structural change that is taking place within the industry.”
HISTORY AND FACTS BEHIND MINMUM WAGE
A key policy for Labour in the 1997 election, the national minimum wage (NMW) first came into force on 1 April 1999. Back then, it was just £3.60 per hour for adult workers over the age of 22 and £3.00 for those aged 18-22.
Of the 34 countries that are members of the OECD, 26 have a minimum wage – nine of which have been introduced since 1990. The UK ranks 10th in terms of the minimum wage paid while Australia and Luxembourg come out on top with minimum wages of more than $9 an hour after tax.
According to the Budget statement, one in five UK workers is low-paid, compared to an average of only one in six among OECD countries.
The Living Wage campaign was launched in 2001 by Citizens UK, which works with the Centre for Research in Social Policy (CRSP) to calculate what households need in order to have a minimum acceptable standard of living. The UK rate is currently £7.85 per hour while the London rate is £9.15 per hour.
Osborne’s new minimum means that by the end of Parliament, an individual aged over 25 working 35 hours a week and previously earning the NMW will see their gross wages increase by around a third compared to 2015‐16, or £5,200.