Upcoming increase in the National Living Wage should be delayed for six months

The upcoming increase in the National Living Wage (NLW), which is due to rise to £8.72 an hour on 1 April, should be delayed by six months to help firms in low-paying sectors at the heart of the economic crisis, the Resolution Foundation said today (Saturday) in its latest Earnings Outlook.

The Earnings Outlook explores the latest rise in the NLW – a policy the Foundation originally called for back in 2014, and has supported ever since – in the context of the current economic crisis.

The Foundation notes that while the high-paying financial sector was at the heart of the last economic crisis, low-paying sectors such as hospitality, leisure, travel and retail are at the epicentre of the current one. This means that rises in the legal wage floor are highly relevant to how many firms weather the economic storm.

Exploring the case for delaying the rise in the NLW, the Outlook notes that increasing the NLW by six per cent next Wednesday (1 April) will significantly increase labour costs for low-paying firms badly hit by the crisis. This is particularly true for the hospitality sector, which accounts for one in five minimum wage workers, and has been completely grounded by the government lockdown.

The increased cost pressure from raising the NLW risks undermining the Government’s welcome support measures for badly-affected firms, such as paying 80 per cent of the wages of furloughed workers, and could push some firms closer to laying off staff.

The Foundation also notes that the long-term target of the NLW, which the Foundation supports, has always been to reach 60 per cent of typical hourly earnings this year. There is a big risk that the upcoming rise overshoots this target, should typical wage growth stall as a result of the current economic crisis.

Turning to the case against delaying a rise, the Outlook notes that minimum wage increases are a key route to boosting pay packets when family budgets are being stretched. The upcoming rise would be particularly rewarding for key workers in low-paying sectors such as social care, food production and pharmacies.

The Foundation adds that key worker areas of retail, such as supermarkets and food distribution, ­are experiencing an increase in demand during the crisis. For firms operating in these low-paying key worker sectors, which employ 1.5 million workers, the latest NLW rise should be no less affordable than it was pre-pandemic.

Looking at the impact on family budgets, the Outlook notes that for some families with children, delaying the NLW rise would be more than offset by the social security boosts announced by the Chancellor last week.

A single adult with two children would still be £789 a year better off, despite a delay to the NLW rise, because of the recent £1,040 a year increase to Universal Credit. A single adult without kids on the minimum wage however, could lose up to £660.

Finally, the Foundation notes that, with the NLW increasing next week, many firms will have already started paying their lowest paid workers the new higher rate. Announcing a delay is therefore unlikely to affect many low-paid workers in financially-healthy firms, but could offer temporary relief for low-paying firms at the heart of the economic crisis, who need all the help they can get to stay afloat and avoid job losses.

Nye Cominetti, Senior Economist at the Resolution Foundation, said:

“The scheduled increase in the National Living Wage next Wednesday to £8.72 an hour will deliver another big pay boost to millions of workers – and represents a landmark moment for a minimum wage policy that the Foundation has long supported.

“But the scale of the current economic crisis puts the latest rise in new a light. Increasing cost pressures for low-paying firms directly affected by the Government lockdown risks pushing them towards making job losses – something we all want to avoid.

“The Government should therefore announce a six-month delay to the upcoming National Living Wage increase. This could provide welcome respite for firms in hard-hit sectors like hospitality and leisure, and give them another reason to hold onto staff during this deep, but temporary, economic crisis.

“Firms unaffected by the crisis can – and should – continue to go ahead with the higher rate.”