City plays down living wage cost fears but hospitality industry could struggle

Analysts predicted yesterday that UK retailers would largely dodge the effects of the new national living wage but warned the leisure and hospitality industry would face tough times.

 

In a surprise move on Wednesday George Osborne announced a new minimum wage of £7.20 per hour from April next year for workers over the age of 25.  This will rise to £9 by 2020 and create a second bracket above the current minimum wage of £6.50 per hour. 

 

The move raised fears for businesses, particularly those in hospitality and retail, which account for two thirds of minimum wage workers.

 

But Barclays retail analyst Christodoulos Chaviaras said in a note that with most listed retailers and supermarkets already paying staff a median wage of £7.30, the impact on margins could be less than feared. 

 

“In our view the cost increases will be very much smaller than one may think, and may be towards the 20-30 basis point impact that a retailer can offset through other efficiencies absent of any price increases,” he said.

 

Peel Hunt’s John Stevenson said retailers including Card Factory, Halford and Sports Direct are likely to be affected, however, a significant number of  staff will fall under the age limit, offsetting some of the costs. 

 

“Corporation tax reductions are welcome and the wider prospect of increased disposable income should continue to benefit consumer confidence,” Stevenson said.  

 

Figures from the Resolution Foundation show that implications for the food and drink sector could be worse, with wages making up a much higher proportion of operating costs.  

 

The British Hospitality Association has warned the move piled further pressure on an industry already struggling to compete with European neighbours due to higher rates of VAT and said it could lead to job losses.