Chief Executive's Blog: Impact of Wage Increases

At the start of April, the rates retailers must pay their colleagues went up, specifically to £7.83 for those aged 25 or above, and £7.38 for those between 21 and 24.  The comprehensive list of rate changes is here so make sure you're paying at or above these rates.  

We deal with many complex, controversial issues in our work with government, but the policy of raising minimum pay rates actually attracts strong consensus across politics. The centre-left views the introduction of the National Minimum Wage as a flagship policy of the Blair era, in fact it's often cited as the defining achievement of that first New Labour government.  The centre-right lauds George Osborne's introduction of the National Living Wage - a significant premium for over-25s taking this rate to 60% of median earnings by 2020. Go towards the edges of the political spectrum, and while you may hear concerns on the left that the minimum statutory rates are too low, and (privately) on the right that statutory minimums skew the labour market, it's a policy most MPs support.

So that's fine, everyone's happy then ... except the businesses that have to find an extra 4.4% (this year, which is fairly typical of recent increases) on their biggest single cost.  How do we, as a sector that's heavily impacted by the National Living Wage, get our concerns heard in among politicians who, if anything, think we should be paying even more? Our strategy has to be to focus on the facts, and explain what the consequences of growing minimum wage rates are for our businesses, but more importantly for the economy and society at large.

We've got a pretty compelling story to tell on the impact of the National Living Wage on jobs in our sector.  The graph below shows a growth in the number of people employed in convenience stores growing to 2015, then declining markedly and consistently over the following two years.

It's also worth noting that there has been a move towards convenience store staff working shorter part-time hours.  So higher wages leads to fewer jobs, therefore argument won? Not really.  The UK's fundamental economic problem isn't unemployment (which is at historical lows) but the productivity of the workforce.  It's crude, and brutal for our members, but the equation that raising wages will lead to higher productivity is fundamentally correct.  Sadly, growing productivity in a convenience store is pretty blunt in practice: you cut some staff hours, work more yourself, and get some self-service tills and other means to reduce the need for as many staff.  But this strategy can only go so far, and doesn't really get started for businesses without the cash and capital to automate some processes in their store.

That leads me to the second, and I think more important, argument.  Retailers who have cut back on staff hours have to work more hours themselves.  When we've asked retailers if they are earning the National Living Wage themselves, half say they aren't.  I take these results with a pinch of salt because some of those retailers are living above the business, and out of the business, and may be building an asset that one day they could sell on, so it's not a simple sum to work out what they're actually earning.  Nonetheless, when it becomes more profitable to work for someone else for the legal minimum than it is to make the commitment and take the risks to run a business, that creates a problem for the economy as a whole as well as for that business and those individuals. Markets only work when there are people innovating, entering sectors, and backing themselves to succeed.  We need to be careful that the incentives aren't now working the wrong way due to the National Living Wage, and indeed auto-enrolment pensions, sick leave being paid by employers, and extended rights around parental leave.

Then there's the wider impact on the business: less time for you to spend developing the store, and less resource to invest in improvements.  If the business doesn't have the time, space or cash to develop, you can't unlock the gains in productivity that you need to weather cost increases.

We need to make these arguments, as we do every year with the Low Pay Commission when they review the level of statutory minimum pay rates for the following year.  Give us the information to explain the impact of these policies on your business.  We won't reverse these policies (and actually most retailers support the concept of a floor below which wages should not fall) but we can make sure that the fairly nuanced issues this raises are understood and taken into account.  You can fill in our survey here and give me or Steve Dowling a call or an email to explain your views and experiences.  We know that crying foul and crying wolf won't be effective, so help us to explain and educate. 

This entry was posted by Chloe on Mon, 09/04/2018 - 09:27