Magazine article Public Finance

Northern Exposure

Magazine article Public Finance

Northern Exposure

Article excerpt

The move to a higher minimum wage - dubbed the 'national living wage' by chancellor George Osborne in his July Budget - will create challenges for many employers. That is especially true in Northern Ireland, which has the UK's lowest average pay, weakest productivity and highest unemployment.

"From the CBI's perspective, we need to get productivity right and then get pay levels up, but we are going to put pay levels up first," says Nigel Smyth, the CBI's Northern Ireland director. "We are going to be disproportionately affected by the national living wage. Companies will employ fewer people. The projection is 60,000 jobs lost nationally and a disproportionate number of those will be in Northern Ireland."

Prices will also rise, Smyth predicts, and not every business will be able to cope. "For individual businesses, it's about innovation," he adds. "We do have a success story here - our R&D levels have risen substantially and are now at UK levels."

The challenge is also about achieving political stability and strong leadership by the Northern Ireland Executive. Smyth fears the consequences if the executive and legislative assembly collapse: "If we go back to direct rule, then you'll have people responsible for three departments who are here a couple of days a week."

A recent report from Oxford Economics for the Northern Ireland Council for Voluntary Action's Centre for Economic Empowerment examined the impact of a living wage. Researched before the Osborne announcement, it considered what the effect would have been on the Northern Ireland economy had a 'living wage' of £7.20 been in place in 2012. (The national living wage will be adopted in 2020 across the UK at about £9 an hour, with a higher level in London.)

In contrast to the CBI, Oxford Economics is positive about the effect of the living wage. Its report found that a quarter of employees in Northern Ireland - some 173,000 people - earned less than £7.20 an hour in 2012. It concluded that a higher minimum wage would boost demand because low-paid workers would have more to spend. Had the proposed rate been implemented sooner, some £221m in additional wages would have been paid in Northern Ireland in 2012, with £88m extra going into income tax revenues and domestic economic consumption increasing by £132m (some 0.5%). The knock-on effect, said the report, would be the creation of 2,500 local jobs.

A study from former Low Pay Commissioner Sir David Metcalf of the London School of Economics examined the impact of the introduction of the National Minimum Wage in 1999. While he found a small negative impact on employment levels, along with some reduction in hours, results were generally positive.

Oxford Economics suggests employers have five options to make a higher minimum wage affordable. These are to cut staff, reduce wage costs in other ways (fewer hours, or cuts to managers' pay), reduce profits, raise prices or increase productivity.

Northern Ireland's economy relies on sectors that are notoriously low paid, including agriculture, tourism and hospitality, call centres and caring work. In many cases, employers are small firms with slim margins. However, Roger Pullen, head of external affairs for the Federation of Small Businesses in Northern Ireland, says that a recent members' consultation found only one to be opposed to the idea of increasing pay. Many, though, said it would be impossible to increase productivity to pay higher wages without deregulation - for example by reducing the ratio of staff to children in a nursery. "If they had been able to put up charges, they would already be doing it to increase their profits," says Pullen.

Glyn Roberts, chief executive of the Northern Ireland Independent Retail Trade Association, is also concerned about the impact of the national living wage. "Our members are facing an almost 'perfect storm' in terms of the national living wage, auto enrolment of pensions, red tape regulation and energy costs [which are higher in Northern Ireland than in Great Britain]," he states. …

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