10 June 2019
Since the National Living Wage (NLW) was introduced in 2016, the rates for 25 year-olds and over have risen by £1 per hour from £7.20 in April 2016 to £8.21 in April 2019. They are expected to go up again to £8.67 per hour in April 2020, a rise of more than 5%. Big wage increases have coincided with higher contributions to pensions auto-enrolment over the last two year, pushing up wage-related costs further.
Yet the government is considering further large rises beyond 2020, reaching £9.61 per hour in a move to end low wages, although the timescales for this are not clear. A rate of £9.61 would push the UK’s rates to the highest anywhere in the world. At present, the UK National Living Wage is the fourth highest, with only Ireland, France and Luxembourg having higher rates.
The impact of wage rises may be felt for younger workers too. The government is rumoured to be considering reducing the National Living Wage from 25 to 23 or even 21 year-olds. Jeremy Corbyn has also announced Labour’s intention to raise minimum wages to £10 per hour for all workers, including 16 and 17 year olds. In hair and beauty 20% of workers are aged 16-24, so steep rises in wage rates for young people would significantly increase business costs, more so than most other sectors.
Ahead of submitting its consultation response to the Low Pay Commission, the NHF/NBF surveyed 400 of its Members to assess the impact of wage increases. As wage-related costs account for up to 60% of overall business costs for service industries such as hair and beauty, it is not surprising that over two thirds of survey respondents (70%) said their profits had reduced - even though half had increased their prices within the last year.
Most were worried that the frequent price increases needed to keep up with rising costs could push clients to competitors. To cut costs, almost half have stopped recruiting, a third are no longer keeping apprentices on, and a quarter have reduced hours. Only 13% are starting to take on chair renters rather than employing people, but this is part of a continuing trend, confirmed by recent NHF/NBF research, which shows the number of self-employed people in hair and beauty has risen to just over half (56%).
Referring to the proposed increase to £8.67 in April 2020, almost half of salons (45%) said this was unaffordable. A further 27% said that after so many big rises, further increases should be slowed down, while one in five said that rises should be in line with inflation.
It’s time to slow down minimum wage rate rises while we assess the impact of Brexit
Hilary Hall, NHF/NBF chief executive, said: “Everyone wants to see stylists, barbers and therapists of all ages earning a decent wage. But there comes a point when ever-increasing wage costs become unaffordable for small businesses, especially service industries where wages and pensions represent a high proportion of overall costs.
She added: “The UK’s minimum wage rates are high compared to nearly all other European countries – but none of them are facing Brexit which has unknown consequences for the UK economy. Service industries are being hailed as bright spots on the high street, with hair and beauty one of the few sectors showing growth. It’s time to slow down minimum wage rate rises while we assess the impact of Brexit, to give salons a chance to recover from a series of steep wage rises and to avoid the risk of further stifling the high street.”