Firms have hiked prices or cut profits to pay for living wage, research finds

Firms have increased prices or cut profits rather than lay off workers to pay for the national living wage, a new study has revealed.

Research by the Resolution Foundation found that a third of employers have faced a higher wage bill following the new £7.20 hourly rate from April.

But a survey of 500 businesses showed that only 6% said the new rate had increased their wages bill to a large extent.

Around one in six expect the living wage to increase their wage bill in the future.

More than one in three of the firms affected said they had increased prices, while 29% were taking lower profits.

The study also showed that 15% had invested more in training and one in eight were spending more on technology, which the Resolution Foundation said will help maintain the success of the living wage.

There was little evidence that the living wage has had any significant impact on employment among lower paid workers, said the report.

Conor D'Arcy, policy analyst at the think tank, said: "The national living wage has already delivered a welcome pay boost to millions of workers.

"The big question has been how employers would respond. The evidence so far is that firms have absorbed some of the impact on their wage bill, while passing on a share of those rising costs to consumers through higher prices.

"Encouragingly, evidence of workers seeing their hours cut or even losing their jobs has so far been relatively limited.

"The challenge now is for firms to continue to respond positively to the national living wage, particularly by raising productivity.

"Brexit is likely to reshape the landscape in which many low-paying sectors operate. This means that the expertise of the independent Low Pay Commission is more important than ever, and ministers should carefully heed their advice.

"The national living wage is the right policy, and crucially pegs what those at the bottom are paid to what the typical worker earns, rather than to a fixed cash figure. This is a sensible approach, building in necessary flexibility in an uncertain post-Brexit world."

A Business Department spokesman said: "The Government wants to move to a higher wage, lower tax and lower welfare society and the national living wage is a crucial part of achieving this. It is encouraging to hear that employers are investing in training and technology which will help to improve productivity.

"We recognise that employers are responding to the NLW in a variety of ways depending on their circumstances. The Low Pay Commission will recommend the level of the NLW going forward to make sure that wages rise to reward workers while considering the impact on the economy."