Tim Dewey: Why National Living Wage could be bad for business and consumers

WHEN George Osborne announced the National Living Wage, to be implemented today, it took everyone by surprise.
Will the National Living Wage be good for the economy or not?Will the National Living Wage be good for the economy or not?
Will the National Living Wage be good for the economy or not?

Now I’m sure most, if not all, of us would agree, in principle, with the idea of increasing wages, particularly at the lower end of the pay scale, but as I’ve looked at the details of this new policy two things have become apparent.

The first, the complexity and increased age discrimination that Government has enshrined in law and the second, the near complete disregard Government seems to have given to the impact of its policy on industry’s costs and ultimately the cost to the consumer (that’s you and me).

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Regarding complexity, we now have two wage concepts, a National Minimum Wage and a National Living Wage. They both increase each year but at totally different times of the year.

The National Living Wage comes into force today with annual increases after that and the National Minimum Wage is revised on October 1 each year.

This creates the odd situation where at introduction the National Living Wage will be 50p more than the Minimum Wage, with the difference dropping to only 25p come October 2016 (when the Minimum Wage increases from £6.70 to £6.95) only for the Living Wage premium to increase again come its revision in April 2017 and so on.

Would it have been too much to ask for a policy that works to the same date rather than creating additional administrative pressures twice a year? Even simpler, given that the National Minimum Wage already has different rates by age band, why introduce a new concept at all?

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It would have been far simpler if a new 25+ age band had been added to the existing Minimum Wage scheme. Less headline grabbing for the politicians, perhaps, but the same effect.

Of course wage changes won’t be only twice a year. That is because employers must now even more carefully monitor each individual’s birthdate. This is because there are now more age tiers at which an employee moves to a new wage; occurring at 18, 21, and now 25-years-old.

We are a relatively modest size of business (and pay above the minimum wage), but can you imagine the administrative challenges for a company with thousands of employees?

Take the example of someone who is 24 today but whose birthday is in January. They might be on the Minimum Wage now; it would then be uprated in October 2016; come January 2017 they would be 25 and move onto the new Living Wage; but come April 2017 that wage will be uprated. In fact, four different rates of ‘minimum’ pay in less than a year (September-April).

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Most pernicious of all, though, is that while on the one hand the Government is saying that “you shouldn’t ask someone for their date of birth on an application form”. they have also enshrined in law another level of age discrimination.

Effectively Government is saying that, based purely on age, someone who is 24 (£6.70) isn’t legally entitled to the same wage as someone aged 25 (£7.20).

Your response to what I’ve written so far might be to ignore the practical realities of increased administration and feel that employers should be paying employees more than these minimum rates anyway (and many already do). But you also need to recognise that there have always been entry level jobs where the minimum wage has been an appropriate starting point.

The hospitality industry is a case in point; for a long time it has been a source of entry level jobs from which one can benefit with no experience and on a part- time basis, as I did as a waiter while at university. But it is also an industry in which one can build a career.

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What the Government has done is to put a wage time-bomb behind the cost base of the entire industry. As the new Living Wage feeds through, the pay differential between these entry level positions and more experienced positions will decrease, to the point where wages further up the chain will also need to be re-evaluated.

Perhaps it won’t hit in the first year, but given that the Government has set a target of a Living Wage of £9 by 2020 this implies an annual Living Wage increase for each of the next four years of 5.8 per cent in a low-inflation environment where average pay awards are running at closer to two to 2.5 per cent (in some cases less).

Those concerned will have little choice but to pass their costs on to you and me, making the cost of an evening out significantly more expensive.

So what do I think? I think we should have a simplified National Minimum Wage structure that changes once a year, has less discrimination by age (fewer age bands) and is set at a healthy level; why not £7.20?

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However, further increases from this point should be measured and take into account inflation, the state of the economy and the impact of the current level on jobs.

If we ultimately want a high wage economy, it isn’t about legislating for it. It is about creating the right economic and educational environment in which all of us together can genuinely deliver it.

Tim Dewey is Chief Executive of Keighley-based brewer Timothy Taylor & Co. Ltd. He is writing in a personal capacity.