Employers 'plan efficiencies to absorb impact of national living wage'

Firms plan to improve productivity, take lower profits or make redundancies as a result of the Government's new national living wage, a study has revealed.

A survey of over 1,000 employers shows half believe the new hourly rate of £7.20 for over-25s from next April will have an effect on their wage bill.

The new rate will have the greatest impact in the retail and hospitality sectors, the research by the Chartered Institute of Personnel and Development and the Resolution Foundation found.

Employers were most likely to say they will respond to the rate by improving efficiency or productivity, absorb costs or take lower profits, or make redundancies or slow recruitment.

The CIPD said firms that have started to think about the consequences are looking at efficiencies rather than cost-cutting.

Fewer than one in 10 said they would cut pay for the rest of their workforce, reduce hours or scale down investment plans.

Smaller companies were more likely to say they will increase prices, while a higher proportion of public sector employers said they would cut the size of their workforce.

Mark Beatson, chief economist at the CIPD, said: "The national living wage was a bombshell for most employers when it was announced in July. It comes into force next April, which does not give employers a lot of time to prepare.

"Hence we found 26% of employers in September saying it was still too soon to say how they would manage the cost implications."

Conor D'Arcy, policy analyst at the Resolution Foundation, said: "The new national living wage will have a huge impact on the labour market when it comes into effect next April, with millions of workers set to get a pay rise and half of all employers saying they'll be affected.

"It's encouraging that so many firms say that they'll respond to the new higher wage floor by improving efficiency. But actually delivering this will prove challenging in many sectors, and it's important that firms are given the necessary support to boost productivity."

The voluntary living wage recently increased to £8.25 an hour, and £9.40 in London.

Rail, Maritime and Transport union general secretary Mick Cash said: "There are already strong rumours coming back to us that contracting and facilities companies in the transport sector may be looking at cutting staff numbers, or cutting hours and expecting staff to do the same amount of work, as they seek to protect their profit margins from the introduction of the marginal increase in the minimum wage for over-25s next April.

"That would be an outrageous and cynical manoeuvre that would make a mockery of the Government's claims that they are on the side of working people when in fact they are standing back and allowing employers to dodge the cost of the minimum wage by paying fewer staff to do more work in order to cushion their profit margins.

"RMT will expose and fight any attempt to shift the costs of the minimum wage off of the employer and on to the backs of our members."