Costly coffee? The Price Of The National Living Wage

With the National Living Wage (“NLW”) coming into force in April 2016, minimum hourly rates are set to rise by 70p to £7.20, followed by a series of increases taking the rate to over £9 by 2020. The question is, is the NLW really a good thing?

Whilst campaigners for fairer pay have welcomed the changes, the response from many business leaders appears to be a resounding ‘no’. One company to have voiced its concerns is Whitbread, the owner of Costa Coffee and Premier Inn. At the moment, it employs around 34,000 people on less than £7.20 an hour.

In a statement, Andy Harrison, Whitbread’s Chief Executive, confirmed that the company would be increasing its prices to “mitigate this substantial cost increase”. He explained that the company had long supported a “steady, sustained, real increase” for minimum wage but that “the scale of the increase is bigger than we would have expected”.

Whitbread’s views are echoed by Justin King, ex-Sainsbury’s Chief Executive, who described the new minimum pay rate as “ludicrous” and “not economically justified”. Mr King also argued that the new higher hourly rate would “destroy jobs” as the increase would inevitably lead to employers seeking to save costs by making their workforces more productive. He explained,“you can't talk about productivity without recognising that one of the consequences of [increasing] productivity is less people producing the same output".

Another company to have hinted at price increases to pay for the NLW is JD Wetherspoon. It has expressed concern that the cost of NLW will only widen the gap between alcohol prices in pubs and supermarkets, risking the closure of pubs across the country.

Other companies have, however, taken a more optimistic view of the NLW. For example, David Potts, Chief Executive of supermarket chain Morrison commented “I am very positive about the opportunity for our front line staff,who work extremely hard and look after our customers, to earn more”.

The Resolution Foundation, whose work on the NLW was cited by George Osborne in his July Budget, believes that around one in four workers will benefit from the increased hourly wage. It calculates that this will lead to only a modest increase in employer’s wage bill of around 0.2%.

Whatever your view, it looks like NLW is set to go ahead, which means your morning coffee may just become a little bit more expensive.