David Cameron has today urged businesses to give their staff a pay rise. Clearly the Government’s economic analysis is that with inflation low, increasing wages would give further fuel to UK plc’s growth at little risk.
That macroeconomic analysis may be correct, but I have to start my response by looking at the microeconomic picture – the costs and income that dictate the way that businesses are run. There are two problems for our sector with a strategy based on a hike in wages, and specifically in the National Minimum Wage.