The warnings from business leaders have simply been ignored. Rachel Reeves appears certain to go ahead with her plan to increase the national living wage, come what may.
No matter that she has been told she risks ‘pricing jobs out of existence’ and undermining growth, the Chancellor is planning in the Budget to boost it by about 4 per cent from £12.21 an hour to £12.70.
She will also commit the Government to extending the living wage downwards to cover 18 to 21-year-olds.
By raising the floor on minimum wages for the youngest workers, she is trying to tempt them off benefits and into the workforce, as well as hoping to deliver on her pledge to improve living standards.
But in an economy where productivity is stuttering at best and output is barely growing following the suicidal increase in employers’ National Insurance costs in last year’s Budget, the increase will prove unaffordable for many small and medium-sized businesses.
The reality is that in the hospitality and retail sectors, which can normally be relied upon to create starter jobs for young people, the extra cost in pay cheques will simply dissuade employers from taking on new colleagues.
The generous uplift in the living wage is incomprehensible, in fact, given the broader political, economic and fiscal forces battering the nation.
A new assessment by watchdog the Office for Budget Responsibility sharply lowered Britain’s productivity and output prospects, dramatically increasing the Chancellor’s Budget shortfall and expectations of swingeing tax increases next month.
If proof was needed, Ms Reeves’ favourite economic think-tank – the Resolution Foundation – is one of the Jeremiahs issuing dire warnings about the policy.
Louise Murphy, an economist at the group, said: ‘There is emerging evidence over the past year that young people’s employment prospects have worsened. There is a genuine risk that another year of very large increases [in the living wage] could harm their employment prospects.’
No matter that she has been told she risks ’pricing jobs out of existence’ and risks undermining growth, the Chancellor is planning in the Budget to boost the national living wage
Angela Rayner might have retreated to the backbenches in disgrace, but her legacy lives on in the form of this controversial Bill
So far, so bad. But things are even worse than that for the jobs market.
For this living wage plan comes on top of the looming enactment of Angela Rayner’s Employment Rights Bill, which will further shatter companies’ inclination to take on workers.
It is a double-whammy that will devastate employment prospects, particularly for the young, achieving the very opposite of Labour’s aim of helping low-pay workers.
Ms Rayner might have retreated to the backbenches in disgrace, but her legacy lives on in the form of this controversial Bill. It is aimed at tearing apart Margaret Thatcher’s jobs-market reforms and would make it easier for workers to strike, will be an assault on part-time work, and will make it far more difficult to sack lousy staff members.
Some 276,000 jobs have already been lost since Ms Reeves’ £40billion tax-raising budget of a year ago. The number of vacancies are plummeting. The unemployment rate has shot up from 4.4 per cent in July 2024 to 4.8 per cent last month.
Giving employees more rights, not least when it comes to strikes, will only accelerate this trend when firms refuse to take people on.
As everyone who uses the NHS, the railways and London’s Underground knows, militant unions – which dominate the public sector – are barely restrained from striking as it is.
Resident doctors (formerly known as junior doctors) continue to paralyse the health service despite the Government agreeing to a generous pay settlement and a record-breaking £29billion increase in NHS budgets.
In September, the RMT union made life hell for commuters across London and the South East. In fact, they brought the network to a halt in the very region which drives economic growth.
Businesses are also utterly exasperated by the prospect of an employment Bill that effectively outlaws the zero-hours contracts, which suit students who must fit work around academic timetables.
Alex Baldock, chief executive of Britain’s top electronics retailer Currys, warned earlier this year: ‘[There are] thousands of students, carers, working parents and older people returning to work whose door to employment is opened by a good part-time job. The door could soon be slammed.’
But the biggest bugbear for many businesses is Ms Reeves’ proposal to protect employees from unfair dismissal from day one in a job, rather than the current two years. That would mean any business, from the small trader to big corporations, would be unable to sack anyone, however useless, from the start of their employment. It is a huge disincentive to take on new staff. Firms would risk being stuck with incompetent workers – with increased wage bills, hefty National Insurance and pension enrolment costs – from the very beginning.
The Resolution Foundation is just as unhappy about this nakedly socialist policy as it appears to be to a large increase in the living wage.
Alex Baldock, of Currys, warned earlier this year that there are ‘thousands… returning to work whose door to employment is opened by a good part-time job. The door could soon be slammed’
The unemployment rate has shot up from 4.4 per cent in July 2024 to 4.8 per cent last month
The think-tank on the weekend warned the Government ‘risks lurching from one extreme to the other – by ending the qualifying period for unfair dismissal protection’.
Resolution’s chief executive Ruth Curtice has urged Parliament to instead take a middle path by ‘reducing the qualifying period from two years to three or six months’.
She argues that ending the two-year qualifying period will only benefit employment lawyers. Businesses feel the same. I recently received a letter from one Carl Shaw who runs a small enterprise in Plymouth. He cautions that ‘skivers could start sick leave on day one’ and urges changes to the Bill before it is implemented.
When the Left-wing Resolution Foundation, Britain’s largest retail chains and small businesses such as Mr Shaw’s, all sing from the same song sheet, one knows something is desperately wrong.
Meanwhile, the Confederation of British Industry (CBI) fears for the impact on young people, who often look to the High Street for their introduction to the world of work.
Most families – including my own – have children and grandchildren who gained their first experience of work in some High Street store – behind the counter at Marks & Spencer or stacking shelves at Sainsbury’s.
A government that has already been forced into desperate U-turns on winter fuel payments and much-needed welfare reforms now finds itself caught in a vice.
Its union paymasters insist there should be no retreat on either the living wage or the Employment Rights Bill.
Earlier this week the Fire Brigades Union urged Sir Keir Starmer to ‘stand firm’ and resist calls from businesses to amend or bury the legislation.
All of this could not come at a worse time for a besieged government, as the late date of the Budget on November 26 – and endless speculation about its contents – is destroying confidence among manufacturers, retailers and ordinary citizens.
One thing we do know as Ms Reeves desperately tries to fill her multi-billion-and-growing economic black hole – Britain is living way beyond its means. We are staggering beneath the burden of an ever-increasing debt as growth stagnates and inflation refuses to go away.
It takes an immensely dim and naive government – one with no sense of how commerce works – to imagine this is the right time to force employers into raising the living wage. This is not a good moment to kill flexibility in the jobs market. Such policies can only create a jobs bloodbath and lead Britain further down the road to ruin.
