September 8, 2015 / 6:30 AM / 4 years ago

Whitbread warns of hit from UK minimum wage hike

LONDON (Reuters) - Whitbread (WTB.L), one of Britain’s biggest employers, said it faced a big rise in costs and would probably take on fewer extra staff due to a hike in the minimum wage, adding to industry warnings the move could dampen economic growth.

The sign of a Premier Inn hotel is seen in Ashby de la Zouch, central England June 17, 2008. REUTERS/Darren Staples

Finance Minister George Osborne in July announced a bumper pay increase for the country’s lowest paid workers to counter criticism the benefits of economic recovery have not been shared out fairly. The hourly minimum wage will rise from next April to 7.20 pounds for those aged over 25, from 6.50 pounds now.

Whitbread, which runs Premier Inn budget hotels and the Costa Coffee chain, employs around 42,000 staff paid by the hour, equivalent to a wage bill of 460 million pounds ($707 million) or about 18 percent of group turnover. Of that number, some 34,000 are currently paid less than 7.20 pounds an hour.

Renamed by the government as the “living wage”, the minimum wage will rise to about 9.35 pounds an hour by 2020.

“The scale of the increase is bigger than we would have expected and clearly employment costs are our biggest single cost,” Whitbread CEO Andy Harrison said on Tuesday, as the company reported weaker-than-expected quarterly sales growth.

The firm is still expanding rapidly, creating up to 3,500 jobs a year, but Harrison said the changes would make it more cautious. “What is true is that we will perhaps over the next year or two be employing fewer extra people than we otherwise would have done,” he said.

A survey of 2,101 employers published by recruiter ManpowerGroup on Tuesday showed companies across Britain are scaling back recruitment plans for the fourth quarter as a result of the coming rise in wage costs.

“The National Living Wage is sending shockwaves through the UK labour market,” ManpowerGroup Solutions UK managing director James Hick said, adding optimism in Britain’s jobs market was at its lowest level for three years

“Some employers are thinking twice about taking on new workers.”

Britain’s independent Office for Budget Responsibility has estimated the living wage will result in 60,000 fewer jobs and projected the cost to business would amount to 1 percent of corporate profits.

Whitbread said it would counter the higher staff costs by improving productivity and increasing some prices.

The company posted a 3.3 percent rise in second-quarter underlying sales growth, down from 4.3 percent in the first quarter, but said it was on track to meet full-year forecasts.

At 1130 GMT its shares were down 2.7 percent at 4,581 pence, the biggest fall in the UK's benchmark FTSE 100 .FTSE index.

Other companies have also warned of a hit from higher wages.

Cleaning services firm Interserve IRV.L said its 2016 margins could take a hit of up to 15 million pounds, while Mears (MERG.L), a care worker company, said the cost of meeting the higher wage bill would be up to 5 million pounds.

Pub group JD Wetherspoon (JDW.L) also warned higher wages could put many pubs out of business.

Editing by Keith Weir and Mark Potter

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