Retail: Minimum Wage Effects

On the day the 2007 increase comes in (Monday 1st October), the British Retail Consortium (BRC) is publishing the results of its annual NMW survey of retailers. It shows the impact of last year’s six percent increase was felt well beyond simply the cost of pay rises for those on NMW.

Retailers’ efforts to maintain differentials for those higher up the pay hierarchy, at a time of higher than expected inflation, added £200 million to the £1.5 billion NMW cost they had budgeted for.

Between 2006 and 2007 retailers’ total wage bills for shop floor staff rose by 12 per cent, three times more than inflation, to £25.8 billion. More than half that increase was a result of the £1.7 billion that rising NMW added to wage bills. At the same time other cost pressures, including energy, rents and rates also shot up while the prices retailers charge customers actually fell. The BRC says retailers need a more measured and predictable framework for future NMW increases.

BRC director general, Kevin Hawkins, says, “Past minimum wage increases have appeared to emerge from an attempt to balance competing bids from business and unions rather than being genuinely based on economics.

“After four previous inflation-busting rises, we recognise the Low Pay Commission gave businesses some respite by recommending this year’s three per cent increase but last year it was six per cent, and four per cent and eight per cent the years before that.”

“The LPC must use its current review to spell out whether the minimum wage is meant as a basic floor for pay or a method of redistributing income from higher to lower wage earners in sectors such as retail. If the LPC has no clear vision of what success looks like, how does it know whether it’s succeeding or not?”

He added, “Future increases should be guided much more closely by increases in median earnings in sectors, including retail, which are most affected by the minimum wage. If that had happened last year retailers would have faced a lower, more predictable increase rather than seeing a further £200 million wage bill pop up from nowhere.”

To achieve greater certainty the BRC wants the LPC to be guided in future by:
Median earnings growth, in particular in sectors such as hospitality, retail and care where many employees are on NMW.

The proportion of workers in each sector receiving NMW (indicated by the sector’s median wage).

Productivity (Gross Value Added) per person which factors in the business impact of changes in regulation, such as increases in annual leave, so indicating the affordability of NMW increases.

PHOTO CAPTION: Kevin Hawkins