The National Living Wage – a no-brainer?

By Mark Linehan, Managing Director of the Sustainable Restaurant Association

It won’t have escaped anyone’s notice that this month saw the introduction of the new “National Living Wage” for all employees aged 25 and over. As Managing Director of an organisation with social responsibility at the heart of what we’re about, surely this has to be a no-brainer? Treating staff fairly is non-negotiable isn’t it?

Let’s deal with the rather misleading term of the “National Living Wage” first. We already had a Living Wage well before the Chancellor decided to announce this new initiative in his first budget, after last year’s election. The existing Living Wage is calculated by the independent Living Wage Foundation and is based on the actual cost of living. So, it’s different for people living in London, which is more expensive, than in other parts of the country, which tend to be cheaper. But it doesn’t vary according to the age of the employee – as rent, food, utilities and so on cost the same for 24-year-olds as they do for 25-year-olds. George Osborne’s version, on the other hand, is determined by the Low Pay Commission and is based on median earnings and “what the market can bear” – which seems a little circular in logic and not necessarily related to what things actually cost.

So that’s all clear then? Well, in cash terms it means someone earning the Living Wage is paid £8.25 an hour (or £9.40 an hour in London) whereas someone on the new National Living Wage gets £7.20 an hour, unless they’re under 25, in which case they earn £6.70 if they’re 21, or £5.30 if they’re 18, or £3.87 if they’re under 18… Or, put another way and based on a 40 hour week, an employee on the Living Wage will be on a salary of £17,160 (£19,552 in the capital), whereas the National Living Wage gives you £14,976 (or £12,896 if you’re under 25).

Apologies for all the numbers, but this is really important stuff, particularly if you’re one of the lowest paid people in society, having to make your money go as far as possible just to cover the essentials. And yes, I know, people in the restaurant and hospitality sector rarely only work 40 hours a week, but I’m not sure how comfortable I am with where that argument goes…

Aren’t there some really important principles at stake here? Shouldn’t people be paid enough to be able to live on, without the need for the tax payer to subsidise businesses through tax credits and other kinds of benefit? Don’t we, as a sector, want to attract, recruit and retain the very best staff we can? Better pay won’t solve these problems, but it will certainly help. And yet, restaurants, hospitality and food service really do face some daunting challenges in shifting to the National Living Wage, which is why there is some anger at the government’s failure to consult the sector ahead of the Chancellor’s announcement. And let’s not forget, the figure of £7.20 an hour is expected to rise to £9.00 by 2020.

Restaurants operate on very tight margins and a 7.5% pay increase for large numbers of staff will have a significant affect. And then there’s the knock-on effect as an increase in pay for the lowest paid will almost inevitably require a review of other salaries within the business. It’s expected that suppliers will charge more, as the price of certain products inevitably increase to account for their increased staff costs. So where will these costs go – squeezing further already tight margins, or will they be passed on to price-sensitive consumers who are accustomed to eating out relatively cheaply, or will savings have to come from elsewhere compromising the quality of bought in goods and services?

We’ve heard talk of the possibility businesses deliberately recruiting younger staff who fall outside the National Living Wage, of restaurants closing on quieter days and of a drive to greater productivity leading to job losses. It should be noted that large bodies of research into the impact on employment of wage increases have shown that, despite scare stories of it triggering unemployment, it does nothing of the sort – the introduction of the minimum wage to the UK in 1999 being a case in point.

What we do see in restaurants and food service, is a sector that wants to be seen as a profession, something young people aspire to and a career you would advise your children to choose, whilst, at the same time, struggling to fill vacancies and attract the right calibre people. We’ve been saying for some time that perhaps food has become too cheap – we spend less than ever, as a proportion of household income, on food – which is a difficult message to carry to families struggling on low incomes. Aren’t people an even more important resource?

I don’t underestimate the challenges the National Living Wage has brought to the sector and have heard about them from many of our members. But this is an issue on which the principle – the fair remuneration of the staff who make businesses a success – is too important to overlook.

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