Hospitality companies will be hit hardest by the government’s National Living Wage (NLW), as the industry faces an increase in wage bills of 3.4% more than general earnings by the end of the decade, according to a leading think tank.
The Resolution Foundation has said that price rises in retail, hospitality and care could be expected as a result of the policy, but noted fewer jobs were likely to be lost than feared.
The Foundation’s new report, ‘Taking up the floor, exploring the impact of the NLW on employees’, said that most industries would be able to absorb the costs, but sectors most affected would carry a heavier burden, including the hospitality sector.
Small businesses with fewer than 10 people would be hit harder than most, with wage bills rising on average by 1.5% more than present forecasts, according to the think tank.
Hospitality was at most risk, said the Resolution Foundation, as many of its employees were on low pay.
The think tank’s report introduction said: “On average, across the six million people affected, the NLW is expected to add £760 annually to pre-tax wages. In total, our analysis finds that £4.5bn will be added to the wage bill of British firms in 2020.”
The Office for Budget Responsibility, meanwhile, has forecast average earnings to rise by 16.5% over the course of the current parliament. The foundation said that hospitality companies would need to find another 3.4%.
Employers could absorb the pressure via price increases, lower profits or productivity gains and, if they can’t, the think tank says the alternative would be reducing staff hours or cutting back on hiring staff. Whitbread is among those companies that have warned they will have to cut jobs and raise prices.
One of the Foundation’s analysts, Conor D’Arcy, said: “Past warnings about the negative effects of the minimum wage on employment have been wide of the mark, but the size of the increase in the new wage floor will certainly be challenging in sectors such as hospitality, retail and care.”
The chancellor’s flagship policy will usher in a 50p increase in the statutory minimum pay rate for the over-25s from April, to £7.20 an hour, followed by a series of stepped increases expected to take the rate above £9 an hour by 2020.
CN asked a selection of conference professionals for their views:
Eamonn Cole, conference centre director at CEME in Rainhan, Essex: “The meetings industry, and the wider hospitality industry, should start to embrace the idea of increased hourly rates for staff and stop complaining about it, otherwise we will never shake off the perception that it will always be a low-paid sector. ‘Unscrupulous’ hospitality employers are the first to implement the lowest possible pay rates they can to hospitality staff and the first to bemoan the annual increase. We will never attract the young talent we desperately need across the industry until we start to change that situation and improve the pay and conditions for the staff we entrust to deliver our products and services.”
Mark Jones, MD at Wyboston Lakes: “As a company we have never paid the minimum wage because our family owners take a long-term view of the business and our responsibility to develop and keep good people very seriously. The issue for us will be the rate of the escalator after 2016. Tariffs may well have to rise somewhat if the 2017 settlement is a significant jump on 2016.”
Alan Robinson, CEO of Conference Centres of Excellence: “The OBR are assuming a 3% p.a average wage increase across the next five years when inflation is currently way below that? If average earnings don’t increase by the predicted 16.5% then the new minimum wage of £9 per hour will have a more significant effect than they are calculating.
“A 7.5% increase in the minimum wage next year, for those businesses that pay that rate to their lowest paid employees, will have an effect on our industry’s cost base. In addition it is not clear is whether the OBR has taken account of the upward pressure of increasing pay to the lowest paid on those above – and the desire to retain differentials in a pay structure.
“My understanding of CCE’s member venues is that the majority already pay above the minimum wage on the basis that they can attract and retain high quality staff if they pay more than their local competitors. For those that do pay more than £7.20 p.h. there would not be a need to increase the rate but would reduce or negate the competitive advantage in the quest to get the best staff.”
Nigel Dean, head of commercial operations, Roffey Park Institute: “Hospitality leaders should welcome the introduction of the National Living Wage and see it as a further step towards attracting and retaining talent into an industry that for too long has dragged its feet when trying to improve quality but refusing to pay more than the minimum wage. Here at Roffey Park Institute we have always paid in excess of the minimum wage to our lowest paid workers and have been rewarded with an engaged, motivated workforce where retention rates are way above the industry norm. This policy may appear to cost a little more initially but it makes economic sense in the long term.”