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Brexit could cut National Living Wage by 40p an hour in 2020

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Written by: Paloma Kubiak
11/07/2016
Since the introduction of the National Living Wage, employers have responded by raising prices or reducing profits rather than cutting jobs, but Brexit will have a major knock on effect on earnings, a report has claimed.

Some 35% of businesses said the National Living Wage, which came into force on 1 April 2016, had increased their wage bill this year. Six per cent said it had increased their wage bill to a large extent, while 16% of firms expect it to increase their wage bill at some point in the future.

Of the firms that have been affected, the most popular short-term action has been to increase prices, followed by taking lower profits, the research by the Resolution Foundation found.

One in seven firms said they’ve invested more in training and one in eight said they’ve invested more in technology.

This, according to the Resolution Foundation, is a more “common sense” approach and will maintain the success of the NLW policy in the coming years.

However, the Brexit outcome is “likely to have a major impact on the labour market in the coming months and years”, the report claimed.

Sectors such as food manufacturing and domestic services, which rely heavily on EU migrant labour are “likely to face major changes” in how they recruit and pay staff, and operate their business.

“The decision to leave the EU has significantly increased uncertainty about the outlook for earnings in the coming years and this will have a major knock on effect for the NLW because it’s set as a proportion of typical worker earnings,” the report said.

Resolution Foundation analysis shows weaker real wage growth driven by higher inflation in the wake of Brexit could reduce the current projected real value of the NLW in 2020 – by up to 40p per hour.

Conor D’Arcy, policy analyst at the Resolution Foundation, said: “The NLW has already delivered a welcome pay boost to millions of workers. The big question has been how employers would respond. The evidence so far is that firms have absorbed some of the impact on their wage bill, while passing on a share of those rising costs to consumers through higher prices.

“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 NLW, particularly by raising productivity.”

D’Arcy added that Brexit is likely to reshape the landscape in which many low-paying sectors operate.

“This means the expertise of the independent Low Pay Commission is more important than ever, and ministers should carefully heed their advice.”

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