Hospitality isn't ready for National Living Wage rises

31 March 2016 by Carol Millett

Less than half of companies in the retail and leisure sector are budgeting in preparation for rises in the National Living Wage, which will be introduced this week.

That's according to a report from business advisory firm Alix Partners, based on an online survey of company leaders in the leisure and retail sectors. It comes ahead of the introduction of the compulsory National Minimum Wage rate tomorrow. The strategy, which sees the minimum wage rise to £7.20 on 1 April, applies to staff over 25 years of age. The Government is also planning for the wage to continue to rise to around £9 per hour by 2020.

The report reveals that companies are planning to offset the cost of the increased wage through raising prices for goods and services, cutting the number of staff and introducing labour efficiencies. However, only 30% of the companies surveyed are budgeting to take account for the wage rise to £9 an hour in 2020.

Respondents were overwhelmingly negative towards the National Living Wage policy, with only 24% believing it will have an overall positive impact on their industry. More than 84% of respondents said its introduction, along with the failure to change Sunday trading laws, will make the UK a less attractive place to do business.

Those surveyed also gave a unanimous thumbs down to the Living Wage Foundation (LWF) rates, which recommends £8.25 across the UK and £9.40 in London, with none of the respondents opting to pay staff the LWF rate.

A total of 43.5% of respondents were from the restaurant/catering sector.

The report said that in the short term the higher wage will add to consumer spending and help to boost the economy, but warned that "the impact of the planned rise to £9 by 2020 looks far more difficult for companies and consumers to absorb and is likely to put significant pressure on many companies' profitability."

The report also recommends companies try to seek cost savings through new technologies, such as the Qkr payment app used by restaurant chain Wagamama as an example, while maintaining or improving customer service.

The wage rise is also likely to hit smaller companies harder, with the report predicting that the "the strongest, best-capitalised companies" benefiting from the wage rises. "Such companies should be better able to absorb the cost increase in the event that customers won't accept increased prices," it concluded.

The Federation of Small Businesses (FSB) warned this week that the National Living Wage could lead to fewer jobs being created, fewer hours for existing staff and job losses.

Mike Cherry, FSB national chairman, said: "It's important that the independent Low Pay Commission continues to play a central role in setting minimum wages. This includes having the ability to recommend that the Government deviates from its plan to raise the National Living Wage to over £9 an hour by 2020, if it becomes apparent that the economy cannot afford it."

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