National minimum wage: should employers stop moaning about wage hikes?

As it becomes clear that Tony Blair is entering the last phase of his tenure as prime minister, it remains uncertain how his time at No 10 will be remembered.

One lasting legacy that employers will point to is New Labour’s rolling reform of the workplace.

Whiel discrimination laws will once more be extended to include age in October, the minimum wage is set to rise again in the same month.

Introduced in 1999, when the initial minimum wage rate for an adult was set at £3.60 an hour, the Low Pay Commission last week recommended the adult rate be increased by almost 6% in the autumn to £5.35.

For employer groups such as the British Retail Consortium, this is an above-inflation hike too far.

The trade association says the rise could lead to around 35,000 jobs being lost and will add more than £1bn to the retail industry’s costs.

The sector, which is notorious for operating on small margins, is already under pressure arising from high fuel costs and a difficult trading year, said James Harbonne, an employee policy executive at the consortium.

“The minimum wage rise will bite all retailers, both large and small,” he said.

According to Harbonne, employers will be forced to take money from non-cash benefit schemes and overtime pay to meet these new base pay obligations.

But Paul Sellers, policy adviser at the TUC union umbrella group, said the consortium’s statement reflects an organisation crying wolf.

“They’ve opposed minimum wage increases every year. We have to take what they say with a pinch of salt,” says Sellers.

Rather than threatening employers, the Low Pay Commission has a history of being over cautious when setting minimum wage rate increases, he added.

Sellers said a wage hike of 30p equates to only an extra £12 a week: a small amount for employers but a quantity that could make some difference to low-paid women and part-time workers, the main beneficiaries of the increase.

“We are confident the new wage will be absorbed by employers,” Sellers said.

Less convinced is Sir Digby Jones, director general of the CBI. “In the light of a mixed economic picture, the jury remains out on whether a 30p increase is sustainable at this stage,” he said.

“The commission must continue to monitor the impact of this increase on jobs and growth.”

But Jones has applauded the commission’s announcement that future increases of the minimum wage will fall in line with the growth of average earnings. “It is a sensible response to employer concerns that the minimum wage is starting to have a damaging impact on competitiveness,” he said.

For Deborah Rees, a senior consultant at pay and reward firm Innecto Reward Consulting, the effect that the minimum wage increase will have on pay differentials must also not be overlooked.

As the wages of low-paid workers increase, the gap between what they are paid and the wages of more senior and experienced workers shrinks, meaning employers may face pressure to increase wages from other parts of the workforce.

“The minimum wage increases could impact on pay inflation throughout the wage structure,” she warned.

Rees said employers that struggle to increase wages across the board should consider non-monetary approaches to employee reward in a bid to retain valued staff, such as flexible working, social events and more sympathetic styles of management.

“Pay is not the only reason people go to work,” she said.

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