National living wage – not good for all

George Osborne

George Osborne

Congratulations George, on a clever budget that wrong-footed an already weak Labour Party and cheered up our normally fractious and disputatious Conservative MPs.  However, I am afraid it is not all good news for potential supporters.  A national living wage may send an important political message to many who need to hear it but it will present serious problems to some organisations that deserve it and a good few that certainly do not.  Who are they?

Obviously and, I think, fair game are the big retailers.  Lidl, Morrisons, Sainsbury, Tesco, Waitrose and whoever I have forgotten rely on employing large numbers of relatively low-paid staff.  They train them and they rely on their need to Tescofit in their work with other duties.  I suspect there will be very little sympathy for the plight of large retailers having to up their hourly rate of pay but watch out for the impact flowing through into supermarket prices!

Two others organisations face a much more challenging situation.

social care_1First is the social care industry, managed and funded by local government that is already struggling with some of the highest levels of funding reductions imposed by central government.  In two-tier areas like Oxfordshire, it is the county council that has responsibility for social care, needing to work closely with the hospital and primary health care sector.  In unitary areas, it will be the unitary council that similarly finds social care funding to be a huge pressure on resources.  Most social care is provided by independent contractors whether profit-making businesses or charitable or voluntary organisations.  They rely on paying their workers the present level of minimum wage and have had to squeeze their margins for years, given the ongoing pressure on local government budgets.  Increasing the minimum wage (now George Osborne’s “national living wage”) is likely to put the final and irrevocable screw on local government finance unless the Treasury understands that neither local government nor their charitable contractors pay corporation tax and will therefore need additional financial support to continue to meet their constituents’ social care needs.  I don’t think that  message has got through the doors of Number 11 yet!

Banbury MillThere is a second and more worrying sector that could face financial armageddon from Osborne’s national living wage.  It is the community sector.  I write as Chairman of the Mill Arts Centre, Banbury and I know we face serious financial pressure if we will have to increase the hourly rate of our casual bar and box office staff from £6.50 now to £7.20 from April 2016 and to £9.00 from April 2020.  The Mill is losing its county council funding and moving to become a Charitable Incorporated Organisation (CIO) as soon as possible.  We are making good progress in this direction and moving from years of loss making to one of modest profitability.  We already face a new financial burden in the obligation to enrol all staff members in a workplace pension scheme (auto enrolment), probably adding £10k pa to our pay bill. I doubt anyone in Whitehall thought of the impact on small, community businesses like The Mill.

Then, we are hit with a national living wage that will add to our payroll costs hugely.  We rely on using temporary staff to man our bars and box office whenever we expect peaks in demand.  In addition to the minimum wage rate per hour for casual staff, we have to pay them a holiday allowance which already increases the actual cost per hour.  A lot of the casual staff at The Mill are there because they have a commitment to the arts and an ambition to be part of the industry.  I don’t know how many of them are drawing Gordon Brown’s working tax credit but the stark reality is that, if The Mill has to pay substantially more per hour for its casual staff, it will seek to employ people for fewer hours.  Bad news for people who want to work in the arts industry.  Again, I wonder if any of the spotty-faced young advisers in the Treasury have any idea of the impact of their policies in the real world?

 

About Keith R Mitchell CBE

Qualified as a Chartered Accountant in 1967. Pursued a successful career in financial training and publishing until selling his interests in 1990. Elected a County Councillor for the Bloxham Division in 1989. Leader of Oxfordshire County Council 5 November 2001 to 15 May 2012. Chairman of the South East England Regional Planning Committee July 2002 to July 2005. Chairman of the South East England Regional Assembly July 2005 to July 2008. In HM the Queen’s 2007 Birthday Honours, appointed a Commander of the Most Excellent Order of the British Empire in recognition of services to local government.
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