Could The ‘Living Wage’ Be The Living End For Some Small Retailers?

Payday written

The number of major retailers lining up to announce impending pay increases seems to be growing by the day, seemingly inspired by the Chancellor’s surprising commitment to what he called a National Living Wage.

Cynics amongst us may say that one motivation for this uncharacteristically altruistic move was to wrong foot opposition parties such as Labour and The Greens who’ve advocated the pay reforms proposed by the Living Wage Foundation.

That said, George’s Osborne’s aspirations fall somewhat short of the LWF’s, but on the face of it we at least have a welcome move in the right direction.

The new rates don’t come in until next year but there may be an ulterior motivation for some larger retailers upping the wages ante now, and in some cases going beyond new statutory requirements. Not only does it gain them several kudos points in the PR arena, it also piles pressure onto their competitors to follow suit. Happily for employees, wages may just have become a much more competitive battleground.

Tesco for example are currently facing a crescendo of calls for them to chase those foreign upstarts Lidl down the Living Wage trail at a time they can ill afford to add further financial pressures to their already creaking P&L sheets.

Balance Sheet Shuffling

For most larger retailers though, paying the higher rate shouldn’t really be a problem. They may have to do some balance sheet shuffling, but it should only make a small dent in their profitability. Certainly there may be a few long faces at the next shareholder meeting, but a couple of extra glasses of champagne will probably help them see the positive side.

WolfsonI have to admit to some bemusement at the recent whinnying from Lord Wolfson about Next’s wage bill increasing by £27m as they also announced profits of nearly £350m. For someone reportedly earning £4m a year himself, it seems rather churlish to begrudge his staff a mere 8% dividend on the profits they helped to generate.

Recent reports about retailers such as Sports Direct allegedly sidestepping even minimum wage regulations don’t do our industry any favours either.

For smaller businesses though the picture is somewhat different and there’s growing disquiet about how many employers are ready and able to deal with the additional demands that will be made on their businesses when the new system starts to be phased in.

For many independent retailers already struggling with overheads increasing every year, the Living Wage is going to be much harder to deal with, especially as we now see that the denouement of the Chancellor’s plot was to pave the way for a shredding of the tax credit system.

Even though that has for the time being proven to be a cut too far, I think it’s far too early to breathe a sigh of relief about future attacks on the low waged economy.

The reliance on tax credits by some businesses has been seen as perversion of the system, but in the face of scant support elsewhere, they  have tangentially helped small businesses by topping up the wages of their lower paid staff.

For many independent retailers already struggling with overheads increasing every year, the Living Wage is going to be much harder to deal with

Whilst I agree that for larger operators it’s difficult to defend such subsidisation, for some smaller companies it’s something of a lifeline.  That’s not ideal, and I know most small businesses would much rather pay a decent wage without pushing their valued workforce onto state assistance, but often there’s little choice.

I know of shop owners trading at the very margins of profitability, often only drawing a minimal salary themselves, sometimes well below the minimum or living wage. They can’t simply magic the money to cover additional wages out of thin air without help on other overhead priorities.

Business rates

VOAMost notable amongst these is business rates, which was the subject of yet more empty political posturing at the Conservative Party Conference, followed by an announcement of a further delay on proposals for reform in the Autumn Statement.  There are now fears that this burden will be even more overwhelming in some areas after next years revaluation.

Many are also creaking under the weight of additional pension liabilities now being phased in. The alternatives for these retailers will be to further reduce staff numbers, break the law, or simply go under.

There are some councils who earlier this year proposed schemes where they would reduce business rates for companies who agree to pay the living wage.  However the devil is in the detail and many of the proposals only meet a small part of the additional costs imposed by the increase to the minimum wage.  Although I’m sure most small retailers would prefer to pay their staff more given the opportunity afforded by overheads savings elsewhere

Can’t pay Won’t pay?

There is of course the argument that if you can’t afford to pay a decent wage, you shouldn’t be in business anyway, but that seems to me to be an attitude that runs contrary to the ethos of the Living Wage principle.

Surely small business owners have the right to make a reasonable living as well as their staff, and options such as statutory profit or equity sharing could be considered for smaller employers and their employees.

I’m a supporter of the Living Wage and I’m delighted it’s finally starting to become a reality. But it can’t simply be waved into existence without some thought for the implications for companies who, no matter how much they may back the principle, may genuinely struggle to pay it.

Without a more comprehensive approach to the overall economic model that these businesses face, it’s likely that, for some of them, the Living Wage could easily become the living end.


This article is an updated and expanded version on my recent Retail Week column

2 thoughts on “Could The ‘Living Wage’ Be The Living End For Some Small Retailers?

  1. Having spent 15 years as a retailer running a small business, I fear the combination of the ‘living wage’ and ‘compulsory pension contributions’ will drive many small businesses to the wall. Over the years I have known dozens of fellow small business owners and chaired my local Chamber of Commerce whose membership was mainly local retailers and none of them drove new cars or had big houses. In fact, most paid themselves less than they paid their staff, didn’t take holidays and had little or no pension provision for themselves. Many will face the choice of reducing staff or closing down, and those that choose to reduce staff will probably lose their ability to take a day off.

    Sadly, successive Governments, both Labour and Conservative, have continually increased the administrative and cost burden for small retailers whilst ignoring issues such as upward only rent reviews, lack of town centre policing and hugely onerous, local authority imposed, car parking charges. Small wonder shoppers in their droves have deserted traditional town centres for out of town malls offering free car parking and a safe, secure, clean and welcoming shopping environment. The small business community’s lack of any effective lobbying voice doesn’t help their cause.

    Closing down our six store chain after Christmas 2008, making our much-loved, loyal, thirty-plus staff redundant was extremely painful and traumatic at the time. However, looking at these changes makes me relieved I am now running an online retail gift store: employing no staff, with no intention of employing staff if it can possibly be avoided.

    A Conservative Chancellor creating an environment where business owners want to reduce staff or get rid of them entirely is bad for the economy and bad for the country as a whole.

    • Hi Brian. I find myself in pretty much the same position as you. We closed our 6 strong chain of stores last year and currently run online only. We were driven to that mainly by falling high street footfall and sales, along with ever increasing overheads, rent and rates.

      We always tried to pay above the going rate to staff and the minimum wage didn’t bother us for years. But gradually we found ourselves having to pay close or just above the NMW to shop floor staff, which was demoralising for us and of course our staff. We also had many managers earning more than I and my co-director did.

      Whilst wages weren’t the biggest burden for us, I’m thankful that this isn’t something I have to deal with at the moment. As you say, things like the new pension arrangements are another factor in all this.

      Most small employers regard staff as friends as well as employees and want to see them earning a decent wage. I took successive wage cuts in order to keep others employed and on a good wage, but ultimately it was unsustainable.

      Like you, I’m surprised there isn’t more discussion about this going on.

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