LONDON (Reuters) - British businesses in the hospitality, retail and social care sectors are likely to be challenged by a planned rise in the minimum wage and will need to find ways to boost productivity, an economic think tank said on Tuesday.
The Resolution Foundation, which researches low pay, said finance minister George Osborne’s plan to raise the hourly minimum wage to 9 pounds by 2020 from its current 6.50 pounds could lead to lower hiring and profits and higher prices.
“Past warnings about the negative effects of the minimum wage on employment have been wide of the mark, but the size of the increase in the new wage floor will certainly be challenging in sectors such as hospitality, retail and care,” Conor D’Arcy, a researcher at the Resolution Foundation, said.
Businesses such as Whitbread, which operates hotels and coffee shops, and clothing retailer Next say the bigger-than-normal increases may cost jobs.
Osborne is seeking to boost work incentives and cut the cost of welfare for the low-paid.
Britain’s independent budget forecasters estimate the new minimum wage will result in 60,000 fewer jobs and project the cost to business would amount to 1 percent of corporate profits.
The higher minimum wage will directly affect around a quarter of British workers, the Resolution Foundation said, and raise employers’ wage bill by 0.6 percent by 2020, plus higher employer social security and pension contributions.
In the hospitality sector, which relies on low-paid staff, the pay bill will rise by 3.4 percent and the government will need to find an extra 1.3 billion pounds to pay for social care, the report said.
“While some (employers) may opt to reduce hours or new hires, past experience tells us that most absorb the pressures via some combination of small increases in prices, a dip in profits and productivity gains,” D’Arcy said.
Reporting by David Milliken; editing by William Schomberg