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Hospitality industry predicts job losses due to minimum wage increases

Harry October 30, 2024

ITV News’ Business and Economics Editor Joel Hills explains what impact changes to the minimum wage could have on the hospitality industry

Each year, the Living Wage Commission collects information on what kind of increase in minimum wage rates the economy can sustain without eliminating jobs.

His proposals tend to be accepted by the business lobby, albeit with the odd grumble.

This year, an increase in the National Living Wage from £11.44 to £12.21 per hour from next April (a 6.7 per cent increase) is considered a fair and painless solution.

The National Minimum Wage is also set to rise from £8.60 to £10.00 per hour for people aged 18 to 20; This is a much bigger (16%) step towards Labour’s manifesto commitment to create a single adult wage.

“The government is keeping its promise to get paid for work,” the Trades Union Congress applauds.

The business lobby group is less enthusiastic.

Just over three million workers in Britain are paid the National Living Wage.

The Confederation of British Industry is skeptical that higher pay as proposed by the government will boost productivity, and the Federation of Small Businesses says it is a pay rise its members cannot afford.

The trick is to strike a balance between raising the living standards of the UK’s lowest-paid workers without sacrificing significant numbers of jobs.

For most of the last decade, the National Living Wage has consistently increased above the average hourly wage.

National Living Wage based on Average Hourly Wage in the UK 1999 – 2024.

In 2015, then-Chancellor George Osborne set a target of reaching 60% of average earnings by 2020.

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

According to the Çözüm Foundation, Cavid’s target was hit and with today’s decision the target will be kept at this level.

Could the government have been more assertive?

The Solution Foundation thinks this is not the case, as the Chancellor is expected to increase the rate of national insurance contributions for employers in tomorrow’s budget, bringing it below the threshold at which tax is paid.

Making businesses more costly inevitably affects employment, but the evidence so far suggests the negative impact is limited.

But there is a “turning point” when increases in the minimum wage begin to cost more jobs or hurt productivity.

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

Hospitality UK represents 700 pubs, bars, restaurants and hotels, employing a total of 3.2 million people.

Chief executive Kate Nicholls said changes to minimum wage rates and national insurance would add £1.5bn to its members’ wage bills.

“The result will be lower profits, lower business investment, higher prices for consumers, fewer working hours for employees and some small, independent businesses will fail,” says Nicholls.

The UK currently has one of the most generous minimum wages in the world, like France and New Zealand, but the hospitality industry believes the tipping point has been reached.