National living wage ‘will leave employers stretched’

George Osborne’s planned rise in the National Living Wage to £9 an hour for over-25s will leave employers with an additional £20 billion bill for workers’ pay by 2020 compared to current levels, according to a new report.

Hike to 9hr for over-25s welcomed but will cost chiefs £20bn by 2020. Picture: PA

And the burden will fall hardest on companies outside England’s wealthy South East, as well as in sectors with large numbers of low-paid staff, such as food and hospitality, where almost half of employees will get a pay rise, found the University of Lincoln study.

The cost to employers is significantly higher than the official £4 billion estimate made by the Office for Budget Responsibility (OBR), because – unlike the OBR –researchers did not factor in predicted rises in salaries, including the minimum wage, over the coming years.

Sign up to our daily newsletter

The i newsletter cut through the noise

The Lincoln study found employers in the North East will be the hardest hit in England, facing a 3.7 per cent increase in total wages (£625 million), closely followed by Merseyside and Yorkshire & Humberside (also 3.7 per cent) and the East & West Midlands (both 3.5 per cent). By contrast, the pay bill in London will rise by just 1.6 per cent and the South East by 1.9 per cent. Northern Ireland’s total pay will rise by 3.9 per cent, Wales’s by 3.6 per cent and Scotland’s by 2.6 per cent, researchers found.

More than a quarter (28.9 per cent) of staff in the health and social work sectors will receive an earnings boost, leaving employers to find an extra £3bn.

And 46.3 per cent of workers in hospitality and catering will gain from the National Living Wage hike, with a total £2bn increase in their pay packets equating to a 10 per cent rise in the overall cost of salaries in the sector. The retail sector will also be profoundly affected, with 42.7 per cent of workers benefiting to the tune of £4.4bn – a 6.4 per cent rise.

Local authorities will need to find almost £1.7bn extra in budgets to cover the wage increases, and the charitable sector will face a £500m annual cost increase, the study found.

Report author Stephen McKay, of Lincoln University’s School of Social and Political Sciences, said: “While the move to a National Living Wage is welcome, the cost to employers of implementing these wage increases must not be under-estimated, particularly in those parts of the UK where a significant proportion of the workforce are employed in local authority, health and social care or charity sectors.”