20 April 2016 | Herpreet Kaur Grewal
The economic impact of paying for the increases in wages resulting from the introduction of the national living wage (NLW) is "difficult to predict", according to research by Bilfinger GVA.
The research briefing paper looks at the likely effects of the introduction of the £7.20-an-hour rate, which was applied to about a million workers above the age of 25 from 1st April.
GVA's research briefing says the economic impact of the wage is difficult to predict and that similar warnings given before the introduction of the minimum wage in April in 1999 "ultimately failed to materialise".
It added: "But since then there has been a fundamental change in the retail, leisure and hotel sectors, with a much larger range of choice and greater competition, particularly from low-cost or online models."
The briefing note states: "An obvious outlet for business would be to increase prices and daily rates to compensate for the increase prices and daily rates to compensate for the increase in wages, but with concerns over the global economic outlook and some retail markets still struggling following the recession, this is not so straightforward."
It points out the heavy reliance upon EBITDAR (earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs) to determine rent in many of the sectors where the national living wage will have the greatest impact means that businesses who struggle with this increase will also face greater pressure on their ability to pay rent.
The research adds: "The strength of existing lease covenants may need to be reassessed in the short term, although it may well be that the biggest impact of the national living wage is more social than economic."