UK200Group members comment on the effect that the National Living Wage will have on consumer prices
Members of the UK200Group of independent chartered accountancy and law firms have commented on Next’s announcement that they may have to increase prices to take the National Living Wage (NLW) into account.
The retailer Next has said that the introduction of the NLW could force their prices to rise by as much as 6 per cent between 2016 and 2020.
Next predicted that 1% of this increase would be due to the NLW itself and 5% would relate to the knock-on effect on other wages in their business.
The NLW, announced by the Chancellor in the Summer Budget, will see mandatory wages for people over the age of 25 increase to £7.20 per hour by April 2016, rising to around £9 an hour by 2020.
Jonathan Russell, Partner at UK200Group member firm ReesRussell, said: “There is no doubt that the new NLW will force prices up. After many years of austerity, businesses have cut margins as far as they can go and now any increase in costs will have to be passed on to the customer.
“The NLW will impact most heavily on those industries that have traditionally employed the lowest paid workers and these are mostly in the customer facing sectors, such as retail, care and services such as cleaners.
“The other way of looking at the NLW is that it will force the economy to grow, if in nothing else but inflation. Many of those on pay scales where the NLW will impact them are likely to be also claiming tax credits or income support, which may well then be cut. The point that some business are also making, is that increasing the wages of those below the NLW may have a knock-on effect on wage differentials for other employees.”
David Whiscombe, director of tax at UK200Group member firm BKL, said: “I would have thought that the other side of the coin for retailers like Next is that the increase in NMW (NLW indeed – pure semantics!) would mean that there is more cash in the hands of punters, who might want to spend some of it on buying more of their tat. But what do I know?”
“More seriously, every major retailer seemed to think Sunday opening was a good thing, despite the fact that it presumably increased wage costs by something like a sixth all round. So it’s not entirely clear to me why the increase in economic activity, occasioned by the introduction of NLW, is a bad thing.”
Duncan Montgomery, tax partner at UK200Group member firm Whittingham Riddell LLP, said: “The Conservative Government has brought in the NLW as a measure to improve the standard of living for employees, and it will have a knock-on effect for those currently paid just above that level.
“Next is in a competitive marketplace, and if the result of this, is that to maintain profits they have to raise prices, then that can only be good news for SMEs.
“Most SMEs are already providing good wage packages for staff, in comparison to the figures quoted, and don’t rely on large volumes of staff that are paid disproportionately lowly. If, as a rule, larger players have to take measures while maintaining their existing business model, smaller businesses should see the market for their goods and services increase, without a substantial increase in costs.”