Hospitality industry predicts job losses due to minimum wage hike

ITV News business and economics editor Joel Hills explains the impact minimum wage changes could have on the hospitality sector.

Each year, the Living Wage Commission collects information on what level of minimum wage increases the economy can handle without destroying jobs.

His recommendations are generally accepted by the business lobby, albeit with the odd grumbling.

This year, an increase in the national living wage from £11.44 to £12.21 an hour from next April – an increase of 6.7% – is considered a fair and painless settlement.

The national minimum wage is also set to rise from £8.60 to £10.00 an hour for people aged 18 to 20 – a much larger (16%) step towards Labour’s manifesto to create a flat rate for adults.

“The government is delivering on its promise to provide wages,” applauds the Trades Union Congress.

The business lobby group is less enthusiastic.

Just over three million workers in the UK receive the National Living Wage.

The Confederation of British Industry doubts that higher wages will boost their productivity as much as the government is proposing, and the Federation of Small Businesses says such pay rises would be difficult for their members to afford.

The trick here is to find a balance between improving the living standards of the UK’s lowest paid workers without sacrificing significant numbers of jobs.

For most of the last ten years, the national cost of living has risen steadily, exceeding the average hourly wage.

National living wage relative to UK average hourly wage, 1999–2024.

In 2015, then-Chancellor George Osborne set a target of 60% of median income by 2020.

In 2019, one of his successors, Sajid Javid, increased the target to 66.7% by 2024.

According to the Resolution Foundation, Javid’s target has been achieved and today’s decision will keep it at that level.

Could the government be more ambitious?

The Resolution Foundation believes not, not least because the Chancellor is expected to increase the National Insurance contribution rate for employers in tomorrow’s Budget and lower the threshold above which tax is payable.

Burdening businesses with higher costs inevitably impacts employment, but evidence so far suggests the negative impact has been limited.

However, there is a “tipping point” after which minimum wage increases begin to cost more jobs or hurt productivity.

The Low Pay Commission estimates that half of all jobs paying at or below the minimum wage are in retail, hospitality, cleaning and maintenance.

Hospitality UK represents 700 pubs, bars, restaurants and hotels, which collectively employ 3.2 million people.

Kate Nicholls, chief executive, says changes to minimum wage rates and national insurance will add £1.5 billion to its members’ wage bills.

“The consequences will be lower profits, lower business investment, higher prices for consumers, shorter working hours for workers and some smaller independent businesses will fail,” says Nicholls.

The UK currently has one of the most generous minimum wages in the world, on par with countries such as France and New Zealand, but the hospitality industry believes a tipping point has already been reached.