Government knew NLW would have ‘negative employment consequences’, employers claim

Chancellor faces backlash as more evidence emerges of changes to staff terms and conditions

Chancellor George Osborne is facing fresh criticism from employer bodies after claims he knew about the possible fallout from the introduction of the national living wage (NLW) before its implementation in April, and failed to adequately consult with businesses.

In a television interview last week, Osborne said he was “angry” with companies cutting staff perks and overtime pay to negate the cost of the NLW, and those employers failing to act in “the spirit of the law” should be named and shamed.

Restaurant chain Zizzi – which this week revealed it was cutting the amount that could be earned from tips, and reducing the choice of free meals available to employees – is the latest in a string of organisations, including B&Q, John Lewis and homewares retailer Dunelm, to make cuts to wider remuneration packages. Some have argued that the changes are unrelated to the introduction of the NLW.

In March, when concerns were raised by Labour MP Gloria De Piero that companies would choose to fund the NLW through cuts to benefits, Osborne replied: “It is for individual businesses to decide exactly how to respond to the introduction of the NLW, appropriate to their circumstances.”

David Norgrove, chair of the Low Pay Commission (LPC), the independent body responsible for advising the government on the national minimum wage (NMW), stressed the high risks the government was running in an article for the Financial Times in October 2015.

He said the LPC had not been consulted about the rise in the over-25 minimum wage rate, and the true effects of the NLW are likely to be much bigger than the Office for Budget Responsibility had forecast.

David Camp, chief executive of Association of Labour Providers, has since revealed that the body also raised concerns with the government “just months” after the announcement in the emergency budget in July 2015.

“Our members were being asked by certain clients – who were perhaps less aware of the Equality Act – whether it was ok discriminate against over-25s,” he said.

“We felt it would be advisable that the government produce clear guidance for employers. But in the absence of such guidance, we have taken on the responsibility to provide our members with appropriate guidance as best we can.”

Camp added that there was “an inherent conflict of intention”, with the legislation aiming to make younger workers more attractive by making them the “cheaper option”.

“But employing people based on age or price alone is direct discrimination,” he said.

The National Farmers’ Union (NFU) has also expressed strong concerns since the wage hike was announced. Anand Dossa, economist at the NFU, said the legislation had been an “implement now, deal with the consequences later” approach, which could spell disaster for many industries, but especially horticulture and farm businesses. According to official forecasts, many of them could be made “uncompetitive and unprofitable within three to four years of NLW introduction”.

The NFU has called on the government to look at the impact the “dramatically” increased costs have had on individual sectors, and recognise that the largest increase to the UK’s minimum wage floor ever attempted would not be as straightforward as when the NMW was introduced in 1999.

“We’re effectively calling for a delayed introduction. This legislation was implemented quickly, and without consultation with the industry leaders whose sectors will be most impacted,” said Dossa.

Conor D’Arcy, policy analyst at the Resolution Foundation, said the government had a “role and a responsibility” to help with the implementation of the NLW, and not “just hand responsibility over to business”.

“They [the government] should facilitate a discussion between organisations on how to legally, morally and successfully mitigate rising wage costs. Some employers have good ideas and can share these ideas with SMEs, who will perhaps struggle the most with NLW – especially in the first year before business tax relief comes in in 2017,” D’Arcy said.

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