Low-paid should receive inflation-only rises, say business leaders

The British Chambers of Commerce have told the Low Pay Commission that a rise of more than 2.7% in the national living wage could lead to job cuts.

Low-paid workers in the private sector should see their wages restricted to inflation-only rises, according to business leaders, who have said that without the real-terms freeze, they could be forced to make job cuts.

The British Chambers of Commerce (BCC) said the “national living wage” (NLW) should rise by a maximum of 2.7% in its response to the Low Pay Commission’s call for comments on minimum wage levels, which are due to be set in the autumn.

In a move that will alarm unions, the BCC said it wanted the commission to agree a rise to help low-paid workers deal with the consequences of inflation, but “without pricing people out of jobs”.

The government is committed to raising the NLW, which is currently £7.50 for workers aged 25 and over, to almost £9 an hour by 2020. In April, the rate increased by 4.2% from £7.20, while the national minimum wage for those aged 21-24 increased by 1.4% to £7.05.

BCC spokeswoman Jane Gratton said low-paid workers should be protected against inflationary pressures that were eroding their spending power. “Setting the national living wage must be done cautiously, comprehensively taking into account economic circumstances, so that people are not priced out of jobs. The government’s current policy was set before the EU referendum and so does not reflect the uncertainty caused by Brexit.

“Businesses are facing high costs when it comes to employing staff – including the apprenticeship levy, pensions auto-enrolment and skills charges. The rise in the national living wage in April this year brought a further increase in wage bills for business across a wide range of sectors, with the need to retain wage differentials multiplying their costs further.”

The BCC’s call comes as official figures to be released on Tuesday are expected to show that the Consumer Price Index (CPI) measure of inflation will stay at 2.9% in June, leaving inflation at a near four-year high. Inflation is expected to stay above 2.7% for much of the year, having already hit 2.9% in May and June.

The figures will extend the squeeze on household finances as inflation outstrips wages, with the CPI having soared as the Brexit-hit pound pushed up the price of imported goods.

Road fuel prices are believed to have dropped by around 1.1% month-on-month in June, according to estimates by Scotiabank, while core items such as clothing, household and recreational goods continued to rise in price.

Alan Clarke, head of Scotiabank’s European fixed income strategy, said food prices and air fares likely made the most notable gains last month, alongside smaller increases in alcohol costs, restaurant prices and package holidays.

One of the main effects of rising inflation has been to cut disposable incomes, which, along with sluggish wages growth and rising debt levels, has meant the biggest decline in consumer confidence in more than two years, according to the Consumer Tracker report from Deloitte.

The quarterly survey of 3,000 people, carried out from 16-18 June, saw overall consumer confidence fall to -10% in the second quarter of 2017, deteriorating from -7% in the first quarter. Spending on essential items and discretionary spending fell compared with the previous quarter.

In further evidence that the experience economy is feeling the impact of the increased mood of consumer caution, the report said spending on extras such as eating out and the cinema fell back for the second quarter in a row – “in a sign that the recent upward trend in leisure spending has also been hit”.