In response to a revamped remit from the Labour Government, which has the express aim of setting a ‘genuine living wage’ that factors in the rising cost of living, in September the Low Pay Commission (LPC), which sets actual rate, revised its estimate upwards for the next increase, set to come into force in April 2025.
The minimum hourly pay for those agreed over 21 is now expected to climb to between £11.82 and £12.39, up from the current rate of £11.44 and the previous estimate made under the Conservatives of between £11.65 and £12.18.
The new Labour Government has also asked the LPC to close the gap for under-21s, currently on £8.60 an hour, with the ultimate aim of removing age bands altogether.
And as the Office for Budget responsibility has pointed out, any increase “spills over to those with earnings up to 40% above NLW, as differentials are maintained”.
Industry chiefs have already warned rising wage costs are threatening to become the biggest challenge for pub operators. At The Morning Advertiser’s MA Leaders Club conference earlier this month, Liberation Group CEO Jonathan Lawson called for a stronger challenge to NLW increases.
Hardest hit
“You get down to the bottom line and it is really tough, and wages are the big figure that is more damaging than anything else at the moment,” he said, adding that tenanted businesses were most at risk", he said.
A rise in the NLW was also cited as a factor in the erosion of pub profitability by the British Beer and Pub Association (BBPA) in its letter to the Chancellor this week, calling for urgent action to prevent “widespread pub closures”.
Meanwhile, union Unite Hospitality, which organises workers in pubs and across the sector, believes the rate should be increased to at least £13 per hour this time around, “to reflect the cost-of-living crisis and previous low increases” with more to follow.
"Unite supports a minimum wage of £15 an hour and has commissioned research to show that this is a viable economic model,” a spokesperson said.
And the truth is many pub operators would agree that having well-paid staff is key to business success – but soaring costs are restricting their ability to invest in their people.
That view is voiced by Steve Alton, CEO at the British Institute of Innkeeping.
Alton commented: “Our sector is incredibly supportive of fair pay for their teams and offers career opportunities across a wide range of roles like no other in terms of fast progression and development,” he said. “Yet pubs have been hardest hit by minimum wage increases that amount to 40% over the past five years.
“Businesses are fed up with Governments who bring in policies to make them look good while it's businesses that foot the bill."
“Even though many operators already pay above the NLW, the impact of further rises is felt through every tier of the business, as they ensure fairness for more experienced staff. At a time in which only one in four pubs are making a profit, this puts further pressure on their operational costs.
“We have already seen pubs reducing staffing levels and opening hours as a result, so any further increases will now need to be balanced with government investment in these essential community hubs.
“We can be a huge part of Government’s plan for the growth and employment needed to regenerate our communities, towns and high streets, but there must be a formal recognition of the vital part pubs play, as well as real action taken to support them in particular with a rebalancing of the unfair tax burden they are facing."
Emma Gibbon, Punch lessee at the award-winning Plough at Prestbury in Gloucestershire, is among those who question a rise in NLW without more help from Government, and she is also sceptical about the plan to move towards a single age band.
She told The MA: “While I'm all for being paid an adult wage for doing an adult job, I feel many youngsters will miss out if they lower the age threshold for the full NLW at the same time as raising the rate. Why would a business employ someone young and inexperienced when they can employ someone mature, responsible and with previous experience for the same wage?
“In hospitality particularly, we take on 16 to18 year-olds, often for their first jobs. They start shy and inexperienced but we nurture, train them and watch them grow. So many of our young staff have progressed from KP roles or glass collectors to chefs, supervisors and managers - but where's the motivation to grow and learn if you can ‘just turn up' for the same wage?
Final nail in the coffin
“It also means that as employers we will need to increase salaries through the job grades. If your inexperienced 18-year-olds are on £12 per hour, then what are we expected to pay supervisors, chefs and managers? How will businesses swallow these rising staff costs when they are already struggling to make ends meet?"
Gibbon added if the new Labour Government, which will mark 100 days in power on Saturday 12 October, does decide this is the way forward then they "absolutely have to mitigate" additional costs for hospitality businesses.
She continued: “It could be the final nail in the coffin for many if it doesn’t. And those who can survive will be forced to increase their prices, fuelling inflation, or cut staff hours and/or jobs. I have heard from so many operators how worried they are about the impact of this.
“The sad thing is they want to pay their staff a decent wage, they want to invest in their people and in training, they want to expand and grow, but there has to be money in the pot to do it."
The Punch lessee explained "the solution" was for the Government to implement a VAT cut, reform business rates as pledged in their manifesto and lower the employer National Insurance rate.
Gibbon concluded: “Businesses are fed up with Governments who bring in policies to make them look good while it's businesses that foot the bill.
“If Government keeps increasing the NLW then small businesses like ours are left with no money for investment. With a third of hospitality businesses already reporting losing money, I’m fairly certain the rate of closures will increase dramatically.”
