In a wide-ranging interview with the Financial Times published this week, CBI President, Paul Drechsler, stated that the impact on businesses of National Living Wage announced in Chancellor George Osbourne’s Summer Budget in July has been underestimated. His comments have produced a strong reaction from trade unions, with GMB accusing the CBI of “crying wolf”.
In the July 2015 budget the Chancellor announced the introduction of a new compulsory National Living Wage for working people aged 25 and over, starting in April 2016 at £7.20 an hour and reaching £9 an hour by 2020. It was also announced that the Low Pay Commission to recommend future rises in National Living Wage to reach 60 percent of median earnings by 2020.
Drechsler, president of the Confederation of British Industry (CBI), indicated that the UK government’s attempt to shift some of the costs it has traditionally shouldered on to the private sector to try to reduce the deficit was predictable and that, while he believed the living wage was “socially the right thing to do”, he thinks the number of jobs it will affect had been underestimated.
“Would we necessarily have advocated the move to the living wage the way it’s happened?” he said to the Financial Times. “It’s had a dramatic impact on quite a number of companies, possibly more than people originally intended.”
It is thought that the introduction of the national living wage next year will affect around six million people and the Office for Budget Responsibility has estimated that the extra costs to employers could mean up to 60,000 job losses.
However, trade union GMB have accused Drechsler and the CBI of “crying wolf” over the impact of the introduction of a Living Wage, citing that, when a national minimum wage was first introduced, the CBI predicted there would be substantial job losses. According to figures released by the GMB, the number of jobs has in fact grown by 3.9 million jobs since then.
“The incoming new director general of CBI should consider adopting a wolf in its coat of arms to pay homage to the long history of this organisation for crying wolf,” said Brian Strutton, GMB National Secretary.
“This troupe of private sector companies bleating about having to pay a fairer wage to their staff is reminiscent of their predictions of Armageddon when the national minimum wage was first introduced 1999. They predicted there would be very substantial job losses.”
“The same CBI also pressed for the UK to join the Euro. Thankfully the Labour Government ignored them on this.”
The GMB have strongly stated their belief that the CBI has a track record of exaggeration and they are exaggerating now on a living wage.
“The fact is that the taxpayer has been funding employers who pay low wages and that has got to stop,” said Strutton. “Where there is a genuine shortfall as in the care sector and other parts of the public sector that rely on public funding through budget stricken local authorities – the comprehensive spending review will need to address this urgently to avoid catastrophic failure.”
According to the CBI, the UK economy is growing strongly and is rebalancing healthily, with investment and productivity increasing. However, whilst speaking at King’s College London to an audience of business leaders, senior economists, Government officials and politicians, the CBI Director-General John Cridland is also expected to issue a warning of the damage that measures such as the mandatory National Living Wage could have on UK employment.
He is expected to reaffirm the CBI’s belief that it is business investment which drives productivity growth, on which wage growth depends.
Whilst the CBI acknowledge that all three are now rising, they insist wages can only grow as businesses grow. Cridland is expected to state that a £7.20 National Living Wage in 2016 and a £9 National Living Wage by 2020 are laudable objectives, but that they are a gamble that depends on organic productivity improvements.
So, are the CBI protecting the interests of big business by scare mongering, or should we, and trade unions like GMB, be careful what we wish for. Many view our jobs-rich recovery as a success which depends on entry level jobs and progression routes, jobs which may become more scarce once they cost companies a minimum of £9 per hour.