Less than half of companies in the retail and leisure sector are budgeting in preparation for increases in the National Living Wage, which will be introduced today, according to a report from advisory firm Alix Partners.
The report, based on an online survey of company leaders in the leisure and retail sectors (with 43.5% of respondents were from the restaurant/catering sector), found that businesses are planning to offset the cost of the increased wage through raising prices for goods and services, cutting the number of staff and introducing labour efficiencies. However, at present only 30% of the companies surveyed are budgeting to take account for the wage rise to £9 an hour in 2020.
Only 24% of respondents said the national living wage would have an overall positive impact on their industry, whilst more than 84% of respondents said the introduction of the living wage and failure to change Sunday trading laws would make the UK a less attractive place to do business.
All survey respondents said they would implement the living wage recommended by the UK government (£7.20) instead of the Living Wage Foundation (£8.25 UK/£9.40 London).
The report said that in the short term the higher wage will add to consumer spending and help to boost the economy, but warned that “the impact of the planned rise to £9 by 2020 looks far more difficult for companies and consumers to absorb and is likely to put significant pressure on many companies’ profitability.”
The report recommended companies try to seek cost savings through new technologies, such as the Qkr payment app used by restaurant chain Wagamama as an example, while maintaining or improving customer service.
The report said: “The impact of the national living wage cannot be considered in isolation, because the UK economy has many drivers. At present, consumers are benefitting from cheaper oil prices and low interest rates, but consumer confidence is fragile and the rhetoric from the government is about uncertain times ahead.
“The initial price rises on the back of the introduction of the national living wage in April are likely to be absorbed, and the extra money in some workers’ pockets will add to consumer spending, which harks back to Henry Ford’s wanting to pay his workers more so they could afford to buy the cars they helped make! That extra money should help bolster the economy and boost inflation, which appears to be what the government is hoping occurs. However, the impact of the planned rise to £9 by 2020 looks far more difficult for companies and consumers to absorb and is likely to put significant pressure on many companies’ profitability.
“In a very competitive marketplace, this government-enforced wage increase offers potential advantages to the strongest, best-capitalised companies. Such companies should be better able to absorb the cost increase in the event that customers won’t accept increased prices. Forward-thinking companies appear to be trying to use the legislation as a positive way of engaging with their workforces. That kind of engagement depends on more than just money, though, so that can represent only part of an effective programme.”
