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Investment in training and technology vital to offset NLW impact post-Brexit

Greater investment in productivity measures such as training and better technology will be crucial to the success of the National Living Wage (NLW) programme, especially as a result of Britain’s vote to leave the European Union, a leading think tank has found.

In a report published today – which includes the first major survey of 500 business responses to the NLW since its introduction in April – the Resolution Foundation said employers will have to look much more at these measures in the coming years.

The impact of the NLW has been relatively minor so far, with the most popular short-term action taken to offset bloated wage bills this year having been increasing prices and taking lower profits, rather than making staff redundant.

Roughly one in seven firms whose wage bill had increased had to resort to using fewer workers, offering less hours or slowing down recruitment, whilst just one in 12 said they reduced elements of their reward packages.

However, in the medium and short term, it will be fundamental that more employers focus on productivity-enhancing measures. The Chartered Institute for Personnel Development had already made similar warnings in June, but the Foundation has now confirmed that the Brexit outcome is likely to have a major impact on the labour market in the coming months and years.

This is especially true for sectors that rely heavily on EU migrant staff and have a large proportion of employees affected by the NLW, all of whom will likely face “major changes” to how they recruit staff and operate their business.

In its report, the think tank added that the decision to leave the EU will also, in some sense, “reinforce the challenge” employers were likely to have faced with the apprenticeship levy and pension auto-enrolment, which it called “an ending of an era of a large pool of relatively cheap labour”.

At the moment, according to the Resolution Foundation’s survey, just 21% of firms expect to invest more in training over the next five years as a result of the NLW, whilst 14% expect to invest in technology.

Conor D’Arcy, policy analyst at the think tank, commented: “The NLW has already delivered a welcome pay boost to millions of workers. The big question has been how employers would respond.

“Encouragingly, evidence of workers seeing their hours cut or even losing their jobs has so far been relatively limited. The challenge now is for firms to continue to respond positively to the NLW, particularly by raising productivity.

“Brexit is likely to reshape the landscape in which many low-paying sectors operate. This means that the expertise of the independent Low Pay Commission is more important than ever, and ministers should carefully heed their advice.”

The Brexit vote is also expected to affect the outlook for earnings, with Resolution Foundation analysis showing that “weaker real wage growth driven by high inflation in the wake of Brexit” could potentially reduce the current projected value of the NLW in 2020.

The NLW, a flagship government policy that was highly criticised in the run-up to its introduction, has also recently cast doubts on the sustainability of the social care sector, with the Commons Public Accounts Committee advising that the Department of Health review its impact  on funding reductions by November this year.

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