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Living Wage is likely to mean a rise in inflation

Terry MurdenThere is a terrible irony in George Osborne’s much-vaunted living wage (a.k.a Nicola Sturgeon’s living wage).

It may be a laudable move to improve conditions for the low paid, but it is in danger of blowing a hole in the Chancellor’s inflation targets and therefore pushing up the cost of living for..er…the lower paid.

Whitbread lit the touch paper earlier this week, warning that it would have to push up the price of hotel rooms and a cup of coffee in order to meet the mandatory pay agreement of £7.20 an hour from next April, rising to £9 from 2020.

Next, Wm Morrison, the John Lewis Partnership and Dixons Carphone have followed by spelling out the implications on their costs.

Lord Wolfson, the chief executive of Next, said the new national living wage could cost it £80 million over the next five years and that it would probably push up prices unless there was an improvement in productivity.

Justin King, the former boss of Sainsbury’s went so far as to describe the National Living Wage as “ludicrous” and warned it would destroy jobs.

Pubs group J D Wetherspoon today joined the outcry. Chairman Tim Martin claims that pubs are also under unfair pressure from the way they are charged VAT compared to supermarkets and that the introduction of the living wage will intensify the squeeze on them at a time when many are closing.

Mr Martin claimed the new pay rules had been decided “by one or two politicians on a whim, for political reasons”.

These companies are in retail and in the case of Whitbread and Wetherspoon, hospitality and tourism, a sector of the economy that employs tens of thousands who are also among the lower paid workers. No one would deny them a fair wage, but the downside has to be considered.

For retailers with chains of stores to maintain, an increase in labour costs is another pressure to bear when they are already vulnerable to online rivals. Many high streets are struggling to stay alive and gap sites are all to obvious. Let’s not be surprised if the wage rise leads to a few more.

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