The report by the Low Pay Commission, the independent body that advises the Government on the rate, has found that while employees have gained, some employers have faced challenges, with social care, childcare and horticulture highlighted in particular.
Around 1.6 million workers aged 25 and over were covered by the introductory £7.20 rate when it came into force in April.
There were also ‘ripples some way up the pay distribution’ with women, part-timers and younger workers particularly benefitting.
Responses varied on the impact across competitiveness and pay.
Half of respondents anticipated an effect on profits, and this response was more common in the childcare and hospitality sectors.
Chair of the Commission Sir David Norgrove said, ‘Early data do not so far suggest negative consequences for employment though employers in specific sectors highlight significant pressures.
‘Social care appears to have been helped by the Council Tax precept [allowing councils to raise council tax by 2 per cent to fund social care], but providers report that their medium-term sustainability remains at risk with many facing losses and some reports of withdrawal from contracts. The horticulture sector warns that high wage costs are a serious threat to the sector, risking viability towards 2020. The childcare sector in England is concerned about the interaction of higher wage costs with increased free hours. We will monitor these sectors closely.’
The report is based on evidence from employers and organisations, including the National Day Nurseries Association.
Affected firms reported a range of consequences for pay, employment and competitiveness, with the most vocal sectors including adult social care, horticulture, convenience stores, childcare and textiles.
The report said, ‘The childcare sector in England was concerned about the interaction of higher wage costs with increased free hours – a “tipping point” which could squeeze margins, reduce quality and increase fees to parents.’
Incomes Data Research (2016) also conducted a survey of 119 employers across a range of low-paying sectors, many of which were large employers.
Just over a third of respondents (35 per cent) felt that implementing the NLW had been either difficult or very difficult – this was particularly pronounced in the childcare sector. The average increase in the pay bill from implementing the NLW was 6 per cent.
The NDNA reported concern about the interaction of higher wage costs with increased free hours in England – a ‘tipping point’ that could squeeze margins, reduce the quality of childcare and increase fees to parents. It said that members had increased payrolls by 10 per cent over the past year, in part due to the NLW, with staff wages the top business concern in its annual survey. It supported higher pay, but was concerned that the NLW had the effect of flattening pay structures, reducing nurseries’ discretion to reward performance and achievement of qualifications. Given regulation in the sector, there was little scope for providers to reduce staffing.
It cited examples of nurseries moving to statutory ratios from more generous ones, and reductions in staff discounts on fees.
Purnima Tanuku, National Day Nurseries Association’s chief executive, said, ‘As a result of the evidence we submitted to the Low Pay Commission, its latest report specifically highlights the nursery sector as being one of three sectors which will struggle to implement the increased National Living Wage.
‘The National Living Wage, which has increased wage bills by an average of 10 per cent, is putting nurseries under pressure exacerbated by successive years of underfunding of “free” childcare hours.
‘This will seriously call into question the sustainability of nurseries ahead of the government doubling funded hours for three and four year olds in September.’
She added, ‘‘The report shows that pay across the grades is becoming compressed so there is less reward for people progressing and therefore less incentive for them to become more qualified. This could have a negative impact on the quality of early years education which is the biggest single factor in improving all children’s life chances.’
The Chancellor confirmed in last week’s Autumn Statement that the NLW will rise to £7.50 from April.
Based on revised growth forecasts the NLW is now likely to be a third lower than when the policy was announced.
The Low Pay Commission has now revised down its forecasts for the NLW in 2020. The Government’s original target was £9.35 by 2020, but this has now been revised down to £8.61 – 74 pence lower than the original figure.