In less than a month, the new National Living Wage will come into place across the nation on the 1st of April. Employers can currently choose whether to pay the Living Wage to workers or not. The current rates are £9.15 for London and £7.85 for the rest of the UK. However, from the 1st of April these rates will be replaced by the new National Living Wage which will be compulsory for employers to pay.
The new wage will be rising by 50p to £7.20 and is set to rise gradually to £9 by 2020. Over a million workers are estimated to directly benefit from the change. The new wage only applies to over
25s but anyone under that age will still have the National Minimum Wage which is set to increase from £6.70 to £6.95 later this year.
Chancellor George Osbourne said “the new National Living Wage is an essential part of building the higher wage, lower welfare, lower tax society that Britain needs and it’s great to see that over a million people will see their living standards boosted when this comes into force on 1st April.”
Problems ahead for businesses?
70% of workers have said they feel more positive about the changes. However, reactions to the original announcement in July were mixed and continue to be. Much criticism has been passed around concerning the effects that an increase in wage costs could have on businesses. Small businesses in particular are some of the most outspoken critics of this new wage as they are more likely to struggle with rising costs.
A report from the Resolution Foundation think tank found that businesses with fewer than 10 employees will be hit the hardest. The Office for Budget Responsibility, which assesses government spending policies, also said that the Living Wage could potentially result in a loss of 60,000 jobs.
The Association of Convenience Stores (ACS) pointed out that retailers might try to mitigate costs by reducing staff hours, delaying investment plans or reducing product ranges like they did when the Minimum Wage was introduced. “All of these measures affect the potential success and profitability of the store, stifling growth.”
Major retailers have already set out their plans regarding the new wage. Aldi has so far beaten its competitors by pledging to offer employees £8.40, well over the requirement. Tesco has fallen short of its rivals by only pledging to offer £7.62, 42p above the minimum. Tesco has announced that to fund changes, it will be cutting pay rates for Sundays and bank holidays, from double-time to time-and-a-half. Night shift supplements will only apply to hours after midnight, as opposed to the current 10pm.
Smaller retailers will likely have to make even more changes than major retailers who can afford to take a bigger hit. As the retail sector is going to be one of the most heavily affected sectors, shoppers could see higher prices as a way of combatting the extra costs for employers.
In response to these criticisms, people say that because employees will have higher wages, they will have more money to spend and this will actually lead to more jobs in the retail sector.