Labour’s plans
Shadow Chancellor, John McDonnell has promised a new “interventionist” economic policy for Labour. He has proposed that the living wage should be raised to £10 an hour to create a “real 
Living Wage”. He boldly said that under a Labour government, “everyone will have enough to live on”.
The current compulsory Living Wage is £7.20 so this is potentially a large increase, even higher than the current government’s plans to gradually raise the wage to £9 an hour by 2020.
Labour has said that it will expand the Employment Allowance to ease the added burden of an increased wage bill for businesses.
Businesses react badly
Adam Marshall, acting director of the British Chambers of Commerce told the BBC, “if a £10 minimum wage was to be introduced it would mean very difficult decisions for many small businesses – they would have to look at their business models.”
He said that an increase in the Living Wage might mean “they may have to reduce their workforce, shift jobs overseas or look to automation.”
Marshall pointed out that the BCC had already criticised the former chancellor’s decision to raise the minimum wage, particularly the proposal to raise it to £9 by 2020. This new proposal has been met with similar criticism and warnings.
He said that the government should not be so involved with determining the minimum and living wages. “We should not be playing politics with these decisions. The rate should be set by the Low Pay Commission and be determined by the state of the economy.”
Like Marshall, some businesses claim that striving for a higher living wage has become politicised and that parties are simply trying to out-do each other by promising unrealistic target wages to impress voters. The common fear circulating is that the reality of these policies would be bad news for business.
What might £10 an hour wages mean for businesses?
Wage cuts or downsizing
While cutting wages in general might not be an option if a business is forced to increase them, there is nothing stopping them from decreasing wages for other more highly paid staff in order to balance out the wage bill overall. Some businesses might even find that they have to let staff go in order to make up for the loss.
They might take on more apprentices
Rather than hiring staff, a company might make more of an effort to employ apprentices who are considerably cheaper. While this would be good for giving young people a chance to learn and work at the same time, some companies might abuse this and take on apprentices with no intention of hiring them after.
Slower growth and expansion
With a bigger wage bill to deal with, companies might not be able to move forward and grow at the rate they would like to. They may be put off from hiring more staff they might need to deal with current and proposed workloads.
Is it all bad news?
Not necessarily. While a lot is being said about the negative implications of a higher living wage, that doesn’t mean there are no positives. Although businesses are concerned, as they were with the new Living Wage, they might be missing a key upside to this.
A more engaged workforce
More money in the pockets of the workers is only going to result in a happier, more engaged workforce. The new Living Wage is said to already have triggered this so further increases would be met with enthusiasm by many workers.
A more engaged and efficient workforce could lead to an increase in productivity and eventually profit. Some businesses might find that their investment pays off as they start to grow in response to this potential change.