In an age of leaks and spin, it’s a rare occasion when the Chancellor announces a Budget with any great surprises in it. It’s rarer still that we immediately feel an effect as headhunters. And yet last week, in what was billed to be a defining budget, a bombshell was dropped: the introduction of the living wage. Almost as soon as George Osborne left the despatch box, we received several calls from clients considering appointing Productivity Directors and Heads of Operational Efficiency as they seek to evaluate the impact of an effective 38% rise in the minimum wage over the next five years.
This column isn’t the place to discuss the rights and wrongs of the living wage, or even whether or not it will actually have a positive effect on workers in the long run. But it is clear that the impact will be disproportionately felt in the retail and leisure sectors, as well as adjacent industries such as healthcare, and those businesses will need to be ready to respond. Out in the field there is understandable unease about the way that this decision was arrived at. As Martin Wolf pointed out, this was ‘definitely a bad way to make policy.’ In making the decision, Osborne ignored the processes of The Low Pay Commission, which was established as an independent body in 1997 precisely for the purpose of depoliticising low pay decisions. Moreover, there was no advance consultation with the industry, something Ufi Ibrahim, chief executive of the British Hospitality Association, considers ‘very surprising.’
Coming out of the blue as it did, businesses like JD Wetherspoon are already warning investors of the potential impact on results as they grapple with the potential ramifications. Companies are looking again at their operating models and it seems inevitable that there will be some cuts to staffing levels, while many of the basics will also be revisited. For example, might this spell the end of stores opening 24 hours as the costs become unviable? On the other hand, these changes could force the biggest innovation we have seen in the consumer sectors, as businesses look to new technology and other solutions.
Not all businesses will be impacted equally; the change may well further advance low-service operators such as the discounters in grocery, or economy operators in the leisure industry like Premier Inn where the labour force is smaller than full-service competitors. Meanwhile, in the convenience and quick service restaurants sectors, the attractiveness of owner-run enterprises such as NISA and other franchises will increase. Of course, although the announcement of the Living Wage may have come as a surprise in the UK, we can also look elsewhere to evaluate its impact. When Germany introduced the country’s first ever minimum wage at a higher rate than the US and UK equivalents last year, it was met with concern by business leaders who warned that it would result in fewer jobs. The jury is still out on that, although as a whole German unemployment figures have continued to fall steadily since.
No matter what the outcome will be, one thing is for certain: the living wage and new operational models are going to be the talk of the summer in the retail and leisure industries – and they are going to be hiring in some big brains to help think it through.
How will the new legislation most affect your business, and what are you doing to prepare for it? Let me know at email@example.com, or if you’d like to discuss the implications in detail, get in touch with Elliott Goldstein, head of our Retail & Leisure Practice, at firstname.lastname@example.org.