Living Wage 'Shockwaves' Hit Prices And Jobs

Employers are said to be scaling back their hiring plans ahead of the introduction of a National Living Wage next year, while Whitbread (LSE: WTB.L - news) is to raise its prices in response.

A survey of firms by the employment group Manpower suggested the jobs market was at its least optimistic for three years this month in the run-up to April, when staff aged over 25 have to be paid at least £7.20 per hour.

It (Other OTC: ITGL - news) marks an increase from the current minimum wage of £6.50.

The report said companies were scrambling to mitigate the rise in their costs, despite promised tax cuts, and while some were looking to hire younger workers to avoid the extra charge, others were blocking new recruitment.

There was also a clear North/South divide, with London and South East England "thriving" while the North East, North West and Yorkshire and Humberside lag well behind the national average in terms of employment prospects.

James Hick, the managing director of ManpowerGroup Solutions UK, said it was a clear sign that the Government's plans to rebalance the economy through the creation of a Northern Powerhouse had so far failed to ignite.

"The National Living Wage is sending shockwaves through the UK labour market.

"An unintended consequence of the introduction of the new living wage is that firms might try to bypass the legislation altogether.

"We anticipate that some employers may look to mitigate the extra costs by taking on more younger or self-employed workers, who are not entitled to the national living wage."

Manpower gave examples of how the legislation could impact company profits, highlighting the case of one social care company which expected its annual wage bill to rise by £5m annually - hitting earnings by 10%.

The findings were released following a separate report by the Association of Convenience Stores (ACS (Amsterdam: SR6.AS - news) ) and Oxford University's Said Business School in July, which calculated that 24,000 stores could be at risk of closure as a result of the living wage.

It warned 80,000 job losses could be lost in the sector while pub chains such as JD Wetherspoon have also raised concerns.

In a trading update released on Tuesday, the owner of Costa Coffee and the Premier Inn chain of hotels, Whitbread, said it planned to mitigate the cost of implementing the living wage "over time".

Its chief executive Andy Harrison said it planned a "combination of productivity improvements, boosted by investment in systems and training, efficiency savings and some selective price increases."

The firm, which also owns restaurant brands Beefeater, Brewers Fayre, Table Table and Taybarns, said it planned to give more details next month.

When the wage plans were announced by the Chancellor in July, the Office for Budget Responsibility (OBR) estimated that the move could cause 60,000 job losses in total.

The Department for Business Innovation and Skills said then: "The Government believes the new National Living Wage is affordable given the strength of the UK economy and labour market.

"We created two million jobs in the last Parliament. There is little evidence that National Minimum Wage rises to date have affected employment."