George Osborne announced in the Summer Budget 2015 that a compulsory ‘new National Living Wage’ of £7.20 an hour will be introduced for over 25s in April 2016. This will rise to over £9 an hour by 2020. Despite the Chancellor using the phrase ‘Living Wage,’ this is in practice a further 50p increase in the compulsory adult National Minimum Wage beyond the announced rise in October this year from the current £6.50 to £6.70.
For workers over 25, the NMW will therefore have risen by over 10 per cent by April 2016. It is assumed that the other NMW rates, which go up on 1 October, will be unchanged on 1 April, so the hourly rate for 21 to 24 year olds will be £6.70, for 18 to 20 year olds will be £5.30, for 16 and 17 year olds will be £3.87, and for apprentices (aged 16 to 18, and, if 19 and over, in the first year of the apprenticeship) will be £3.30. In effect, there will be five age related NMW rates. It is also assumed that the Accommodation Offset (of £5.35 a day from October) will continue to apply to all NMW rates.
Given that a quarter of the hospitality workforce is on the minimum wage and a significant further proportion earn between the NMW and the new ‘Living Wage’ rate, the impact of the Chancellor’s announcement on the industry will be considerable, especially when the costs of maintaining differentials are taken into account.
The Chancellor announced some changes that are expected to offset the higher wage rates, including a £1000 increase from next April in the Employment Allowance, which reduces National Insurance costs, and a Corporation Tax cut of 1 per cent in 2017, while the Annual Investment Allowance offset to Corporation Tax has, at last, been put on a continuing basis at £200,000.
There is little doubt that the ‘National Living Wage’ will be a popular political move and indeed may reduce some of the pressure on employers from supporters of the unofficial and non-compulsory ‘Living Wage’ of £7.85 outside London and £9.15 inside London. It does not appear to require primary legislation, unless other, undisclosed changes to the National Minimum Wage rules are proposed.
Ufi Ibrahim, chief executive of The British Hospitality Association, said: "Hospitality and tourism created one in five jobs in the last Parliament and is the fourth biggest industry in employment terms but there is more we can achieve with further support from the Chancellor. As an industry employing a large number of individuals earning more than national minimum wage and less than the proposed living wage, we have tried to have a constructive dialogue with HM Treasury on building towards the living wage without job losses. We were very surprised the Chancellor made this announcement without consultation. Despite the Chancellor trying to alleviate the pain with adjustments to corporation tax and employment allowances, these changes do not go far enough to reduce the impact on SMEs and mitigate potential job losses.
“On top of all these new pressures, our industry is at a serious disadvantage with other European countries where tourism VAT is on average 10%. We call upon the Government to lower VAT on accommodation and attractions to 5% to increase our market’s competitiveness and reduce costs to working families. A cut to tourism VAT could supercharge the economy with over £20 billion in foreign exchange earnings and domestic spending over the next 10 years."
“While we are analysing the potential impact of the Chancellor’s announcement, constructive dialogue with HM Treasury is now imperative to identify measures to counterbalance the Government’s ambitious agenda with the realities of running a high service and very low margin business."