CBI fears growth may slow as wage costs rise

Carolyn Fairburn, the new director General of the CBI at their offices in London, 2nd November 2015.
Carolyn Fairburn, the new director General of the CBI at their offices in London, 2nd November 2015.
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Economic growth could be hit by increasing costs such as the new national living wage, coupled with a shortage of skilled workers, a leading business group has warned.

A study by the CBI and Accenture found that two out of five firms planned to increase their workforce next year, with permanent jobs outstripping temporary posts.

But the survey of 342 companies revealed concerns about rising labour costs because of the new £7.20 an hour wage rate from April and plans for an apprenticeship levy.

Half of firms in the service sector said they would increase prices because of the impact of the living wage, and one in four will employ fewer staff.

The CBI said there was a risk that the UK’s skills shortage will get worse as employment continues to increase.

Carolyn Fairbairn, the CBI’s director general, said: “The UK’s labour market has continued to outperform expectations with businesses delivering jobs in every region of the UK.

“But there’s a danger of Government complacency, with companies facing multiple increasing costs, through the apprenticeship levy, the national living wage and unreformed business rates. These are acting as a cumulative drag that could hamper growth.

“Given the uncertainty surrounding the effects of the national living wage, it is critical that an independent, evidence-based Low Pay Commission plays the main role in assessing its true impact and recommending future rate rises accordingly.

“The Government must be careful not to sacrifice prosperity for political expediency by saddling businesses with costs that could harm investment, which is critical to increasing productivity.”

More than half of businesses surveyed said they intended to give staff a pay award next year at or above the RPI rate of inflation, but nervousness remains about the impact of the new national living wage.

Over half, 51 per cent, of service sector respondents indicate they will raise their prices, 27 per cent will employ fewer people and 18 per cent will make changes to their reward packages as a result.

As the economy heads towards full employment, there is a risk that skills shortages continue to worsen.

Further restrictions on skilled migration would hamper business activity, with 29 per cent of companies affected reporting they would fail to meet customer demand if they were unable to get the right person, in the right place at the right time. More than a quarter of respondents added they would look to move certain functions or activities overseas.

Emma McGuigan, managing director at Accenture Technology, said: “Business optimism is absolutely clear, but these findings also signal a real challenge in the employment landscape.

“Most significantly, just under half, 46 per cent, of respondents reported a lack of skills is threatening to have a major impact on the UK’s labour market competitiveness.”

On apprenticeships, 25 per cent plan to increase recruitment, with six per cent planning to reduce it, and more than a third want to see employers given greater control over the levy.

The survey though was carried out before more details of the apprenticeship levy were confirmed in the Autumn Statement on November 25.

Neil Carberry, CBI director for employment and skills, said: “The UK’s labour market is in fine fettle, though it’s clear that maintaining flexibility is of the utmost importance to employers.”

When asked about their view of the UK as a place to invest in five years’ time, businesses were optimistic – with 41 per cent saying that they anticipate the UK will be much more or slightly more attractive place to invest in the future.

Significant job losses ‘inevitable’ as apprentice levy introduced

Carolyn Fairbairn took over as director general of the CBI from John Cridland last month.

Yesterday, in an interview with The Sunday Times, she said that unless there were changes to the apprenticeship levy, it is “inevitable there will be significant job lossess” in some sectors.

The Government confirmed that the apprenticeship levy will come into effect in April 2017, at a rate of 0.5 per cent of an employer’s pay bill.

A £15,000 allowance for employers will mean that the levy will only be paid on employers’ pay bills over £3m. Less than two per cent of UK employers will pay the levy, the Government said.

The Government hopes to raise £3bn a year by 2020 with the levy, funding three million new apprentices.