Opinion: Living wage or slow death?

Chris Losh

Chris Losh

09 July 2015

According to most commentators, George Osborne’s budget yesterday was political genius. The first pure Tory budget in 18 years, it managed to draw a strong blue line under the Labour and coalition years, to the evident delight of conservative MPs.

Paradoxically, it managed to do this while appropriating a couple of core Labour election pledges – on non-doms and the minimum wage – emasculating the opposition at a stroke. It is, after all, hard to criticise your opponent’s policies when he’s just nicked them from your manifesto.

Of all the announcements yesterday, there are two that have an evident impact for the readers of this magazine: the cut in corporation tax and the introduction of a national living wage.

The former will see a cut from 20% to 19%, and then down to 18% by 2020. The latter (somewhat cynically named given it is still below what most impartial organisations believe is the actual living wage, particularly in London) will go up to £7.20 an hour in April, and rise to £9 by 2020.

Broadly speaking, it means that for every £100,000 pre-tax profit your business makes, you will be £1,000 better off, and for every person employed on the minimum wage at, say, 40 hours a week, businesses will be about £1,500 worse off.

In other words, if your bar/restaurant/hotel makes £300,000 a year and has two 40-hour/week employees on the minimum wage, you’ll more or less break even as a result of this budget.

This scenario, however, is riddled with complications.

  • It’s hard to argue against an increase in raising the hourly rate of the lowest-paid in society if it makes them better off. But the 70p increase will probably be more than offset by the swingeing cuts to tax credits and housing benefit. In a year’s time, the lowest paid workers in the on-trade are probably going to be worse off, not better.
  • Most on-trade businesses operate on wafer-thin margins, and employ many people on low salaries. Raising the salaries of half a dozen of them simultaneously would equate to about £10,000. As a result, we can expect to see a good number of people being laid off over the next year. The reminder might be better paid per hour, but they’ll also be working harder to make up the difference.
  • As well as the direct impact on the lowest-paid, there is likely to be a ripple effect on other wages, too. If that pot-washer is now earning over £7 an hour, then they’re suddenly approaching the salaries of the first rung of more skilled workers who, doubtless, will want a pay rise of their own. It would be interesting to know how many hospitality businesses have that kind of spare cash lying around. Not many, I’d guess.

The problem is that it’s difficult for a business to complain about this kind of ‘help the poor’ legislation without sounding like a Victorian mill baron.

Which is why I’d suggest that the on-trade accepts this as a done deal (albeit through clenched teeth) and focuses instead on an alternative plan to get some money back in its coffers.

A cut in VAT on hospitality to, say, 5% would have a huge impact. It would allow businesses simultaneously to cut prices and make better margin, encourage the public to go out more and get cash flowing through the economy.

This is language that the Conservative party understands.

It would also allow the industry to increase its minimum rates of pay – moving beyond £7.20 and closer to the 2020 £9/hour figure, which would put the on-trade on the right side of the argument for once.

The British Hospitality Association is lobbying for a VAT cut in tourism – the on-trade needs to do the same. It could do worse than get behind Jacques Borel’s VAT Club (which we've previously reported on) – the octogenarian has had success in getting VAT rates cut in hospitality around Europe, and has the figures to prove how many jobs are created by doing so.

Failing that, maybe we at Imbibe should make some noise. What do you think folks? I don’t think that doing nothing is an option…

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