Wholesale distribution will be among the UK business sectors worst hit by the introduction of the National Living Wage, with wholesalers’ profitability severely threatened if proposed rises go ahead over the next four years.
In a report published today, Capital Economics reveal that 30% of food and drink wholesalers’ staff will be directly affected by NLW, adding 0.7% to employers’ wage bills when the £7.20 rate for over 25s comes in in April. Proposals to increase the rate to £9.35 by 2020 would see wages rise by between 2.6% and 3.7%, adding up to £59m to the sector’s costs, equivalent to 2,600 jobs. Wholesalers surveyed in the report say they will also need to raise pay brackets for those above the NLW in order to maintain differentials, and will consider matching the rate for under 25 in equivalent jobs.
Speaking at the report’s Parliamentary launch, Glyn Chambers of Capital Economics said that competition and deflation in the grocery market meant wholesalers surveyed were reluctant to pass on the increased cost to their retail customers. “They also do not want to reduce their workforce, so we see profitability and investment being affected in the short term, with the potential for job losses and lower job growth if subsequent rises go ahead,” he said. Non-statutory forms of remuneration such as bonuses and employee discounts would also be affected.
Martin Williams, Chairman of the Federation of Wholesale Distributors and Managing Director of Landmark Wholesale, said that the cost burden over four years would wipe out some wholesalers’ current net profit. “Wholesalers run lean, efficient businesses on very low margins, and don’t want to put their prices up in a competitive market. While we have always supported the minimum wage, we can’t absorb bottom-line cost increases of the size and frequency that the Government is proposing.”
Association of Convenience Stores’ Chief Executive James Lowman added that the retailers who make up a significant proportion of FWD members’ customer base would be hit by a collective bill of £167m under the new proposals. This would result in some store closures, with other retailers stopping investment in their businesses, cutting staff hours, and not replacing staff as they leave.
FWD Chief Executive James Bielby said the Federation was working with trade associations representing similarly-affected businesses. “We are assessing the cumulative impact of NLW across a wide range of sectors, and will demonstrate to the Chancellor that his ambitions for the speed and scale of NLW rises will lead to job losses and business closures. We believe the rate of increase must be slowed, with the target of 60% of median earnings pushed back into the next parliament, or mitigated by other measures.”
The report, Delivering Employment, reveals that the food and drink wholesale sector employs 70,000 people, with a high proportion of young people, women and ethnic minorities among the workforce. Wholesalers create £2.9bn of gross added value annually, pay £480m in taxation to the Exchequer each year and are big regional employers with 17,000 employees in the north and 17,500 in the devolved nations.
The Impact of the National Living Wage:
· 30% of the workforce will be directly affected raising firms wage bills by 0.7 % in 2016
· By 2020 firms’ wage bills in the sector will be between 2.6% and 3.7% higher due to the projected cost of the NLW
· The cost of the NLW in 2020 will be £42-59m which is the equivalent to 2,600 jobs
· Firms will not only have to increase wages for those above 25 on the current living wage. They will also need to raise pay brackets for those just above the NLW and for those under 25
· The NLW may result in job losses, profitability will be reduced in an already challenging economic environment. Due to competition it will be difficult to pass costs on to customers
· 20% of firms will consider laying off staff
· The wholesale sector employs 70,000 people directly in the UK
· It creates £2.9bn of gross added value annually
· Food and drink wholesale pay £480m in taxation to the Exchequer each year
· Food and drink wholesalers are big regional employers with 17,000 employees in the north and 17,500 in the devolved nations
· They have one of the largest shares of employees under 25 with over 21% aged between 16 and 24
· 47 % of employees are women and 9% of all employees are on training and development or apprenticeships schemes