How are franchises reacting to the introduction of a National Living Wage?

Whilst July's budget saw a lot of predictable measures introduced, the introduction of a National Living Wage knocked some for six. But how are franchises reacting to the news?

How are franchises reacting to the introduction of a National Living Wage?

It was always inevitable that the post-election budget, in which chancellor George Osborne laid out the meat of the next five years of economic policy, was going to be a big deal for businesses of all stripes. But whilst there were some predictable announcements – corporation tax cuts anyone? – there was also a major shock in there as well. We’re talking, of course, about the introduction of the National Living Wage.

Whilst a living wage has long been called for, the reveal of the Tories’ National Living Wage certainly shocked a few pundits when it was announced on July 8. The new National Living Wage will initially see over-25s earning £7.20 an hour by 2016 and £9 by 2020 and will theoretically provide a better deal for UK employees. But there are still a fair few criticisms of the plan: despite the cuts to corporation tax, which is set to fall to 19% in 2017 and 18% in 2020, a 50% increase in the Employment Allowance and a year-long lock on income tax, VAT and national insurance, some are questioning how the measure might impact businesses’ bottom line.

It does seem that the new National Living Wage will result in more pennies in the public’s pockets but support for it is far from unequivocal. So how does the world of franchising feel about it?

“It throws up a lot of questions,””Mark Keegan, financial director, Select Appointments

There’s no question that the proposed National Living Wage is something that everyone in the recruitment industry will be keeping a close eye on. Somewhere in the region of 1,600 employers already pay what is known as the Voluntary Living Wage, which is £7.85 and £9.15 in London. The chancellor’s proposal of £7.20 from next April is actually quite a bit below this, so I’m not sure that the National Living Wage is actually as big an economic gesture as everyone initially thought.

But the biggest concern for our business will be how employers react to paying the increase. Will they take fewer people on as a result? Will they think longer and harder about retaining staff in quieter periods? Will they look towards using more temporary staff to reduce the number of contracted employees they have? Since the increase doesn’t include the under-25s, will employers look to recruit more from that pool as a result?

I am sure that all hourly rates will ultimately be affected. At the moment employers paying above the minimum naturally attract the best candidates but as those rates become the norm, they will lose their advantage. Will they put their wages up to compensate? Will there be a domino effect on all wages? It throws up a lot of questions.

“The government is passing on a lot of costs to businesses,””Ken Deary, managing director, Right at Home

I believe that higher wages across the wider care sector will attract more people into what has long been perceived as an under-valued job role, considering how important caring for vulnerable people is. However there are undeniable implications for those companies who rely on local authority funding and whose budgets for care delivery are already stretched almost to the point of no longer being viable.

I added my signature to an open letter to the chancellor from the United Kingdom Home Care Association (UKHCA), in which we urge him to look very carefully at providing additional government funding to help local authorities afford this inevitable rise in the cost of providing home care as a result of the rise in the minimum / living wage. This needs to be addressed in the upcoming spending review or the industry will be facing a disaster.

Overall, my biggest concern is that the government is passing on a lot of costs to businesses, such as the National Living Wage, pensions contributions and an increase in dividend rates for the self-employed. SMEs, which include franchises, are the lifeblood of our economy and hopefully we will see more positive government support for the sector in the future. style=

Josh Russell
Josh Russell