The National Minimum Wage currently stands at £6.50 per hour, rising to £6.70 in October 2015. For those aged 25 and above, their hourly rate will rise to £7.20 in April 2016.
To help offset the cost increase for businesses from April 2016 the Government will increase the National Insurance Contributions Employment Allowance from £2000 to £3000 a year, with a reduction in corporation tax to 19% in 2017 and 18% in 2020.
Alongside the budget, the Government also published a new remit for the Low Pay Commission (LPC). To ensure the rate of the National Living Wage is set a sustainable level and continues to take account of broader economic conditions, the LPC remit will require it to set the National Living wage in a way that reflects growth in the median earnings. The LPC’s remit in relation to the NMW will remain unchanged. The Government will ask the LPC to set out how it will reach 60% of median earnings by 2020 based on OBR forecasts.
With labour costs one of the main components for agricultural businesses, the introduction of a compulsory National Living Wage will make it challenging for some sectors to remain competitive. The introduction of a living wage comes at a time when farm businesses will be faced with increased market volatility and cash flow challenges. It will also coincide with the staging dates for many micro and small businesses for pension automatic enrolment which will add further costs. We will need to assess the impact in more detail but there is an unanswered question about the indirect impact this will have throughout the supply chain on food prices, including on consumers and producers.
The living wage could mean businesses in some sectors will be faced with some tough decisions. It could lead to businesses looking to minimise the impact by reducing overtime and putting investment plans on hold. There is a concern that this could further complicate the pay system with a national minimum wage in place and a living wage adding a further pay level for those aged 25 and over. It could leave businesses facing increased administrative burden with a rise to the National Minimum Wage in October followed by the introduction of the Living Wage six months later.
This announcement risks undermining the role of the Low Pay Commission. We need to be reassured that further increases will be based on the recommendations of the independent Low Pay Commission following extensive evidence gathering and research with employers and employees.