Millions of workers on the national living wage are set for smaller than expected pay rises by the end of the decade after the EU referendum, according to a thinktank.
The “national living wage” introduced by the chancellor, George Osborne, is set to rise more slowly because it is linked to average worker earnings, which are now expected to come under pressure following the referendum.
The real-terms value of the wage by 2020 could be up to 40p an hour lower than the £8.31 predicted before the EU vote, according to the report by the Resolution Foundation.
The minimum pay rate of £7.20 an hour for over-25s was introduced by Osborne in April after he said: “Britain deserves a pay rise.” The rate is designed to gradually increase over the next four years and initial estimates had suggested it could reach £9 an hour by 2020.
But the thinktank found there is increasing uncertainty about the outlook for earnings. This will have a major knock-on effect on the national living wage, it says. The national living wage aims to reach 60% of a typical (over-25) worker’s hourly wage by 2020. The Resolution Foundation expects 4.5 million employees to benefit from the national living wage in 2016, rising to 6 million – or 23% of all employees – in 2020.
However, wage growth has stalled recently, with analysts citing a number of reasons. These include a lack of job-to-job moves and employer reluctance to increase pay while inflation is so low and the economic outlook is unclear.
Conor D’Arcy, a policy analyst at the Resolution Foundation, said: “Brexit is likely to reshape the landscape in which many low-paying sectors operate.”
According to an Ipsos Mori poll carried out for the thinktank, one in seven firms have already cut jobs, reduced staff hours or slowed recruitment after the national living wage’s introduction in April.
About 35% of the 500 businesses polled said their wage bill had increased as a result of the wage.
Of those businesses affected, 36% responded by increasing prices and 29% by taking lower profits. The Resolution Foundation said such short-term responses would have to be replaced by changes in behaviour over the medium-to-long term.
One in seven firms have already invested more in training and 12% have spent more on technology to improve productivity. The Resolution Foundation said such approaches are important in making the national living wage a success and tackling the UK’s wider productivity problems.
But the survey also found 14% of firms had used fewer workers, offered fewer hours to staff or slowed recruitment. In addition, 8% had reduced other aspects of their staff reward package, such as paid breaks, overtime or bank holiday pay.
The survey results counter evidence that high-profile companies, including Tesco, Marks & Spencer and B&Q, clawed back staff benefits after the introduction of the national living wage.
D’Arcy said: “Encouragingly, evidence of workers seeing their hours cut or even losing their jobs has so far been relatively limited. The challenge now is for firms to continue to respond positively to the national living wage, particularly by raising productivity.”