Businesses work hard to raise pay
The CBI/Pertemps Network Group report People and Partnership looks at employment trends in the UK. One of the key aspects the survey examines is what businesses are doing to raise pay, and the impact of the national living wage is having on businesses.
A great deal of uncertainty existed both before and after last year's EU referendum. As Britain's long-term future relationship with Europe still remains unclear, a good deal of uncertainty remains also. However, the economy has certainly stabilised after the initial shock of the Brexit result. Most businesses expect that they will be able to increase wages in line with inflation during the coming year. The national living wage continues to cause some concern with many companies expressing worries about its impact. This is certainly something that will need to be carefully monitored over the next couple of years, but the overall outlook is clearly a positive one.
Businesses take a steady line on wages
It is true that caution with wage costs has supported the impressive jobs growth that the UK has experienced since the financial downturn. It seems that the same steady line looks set to be taken in 2017. Most respondents to the CBI Employment Trends Survey plan to offer pay awards that are in line with RPI-measured inflation. Indeed, 17% expect to go higher still. With 40% planning inflation-linked pay rises, this shows a similar pattern overall to previous years.
As competition for top talent and skills increases, it is no surprise to see that 18% of firms are planning to target pay rises on specific groups of staff - those deemed to have the greatest impact for the organisation as a whole.
Of course, thoughts of the potential impact of the Brexit vote continue to loom large in the minds of employers. 15% (a slight increase) are planning a pay freeze during 2017, reflecting the uncertainty about what the future holds with Britain out of the EU - and the pressures of intense competition that many businesses are feeling.
The impact of the national living wage
Whilst the CBI shares the government’s goal to create a high-wage economy that will boost prosperity, the challenge that the implementation of the national living wage (NLW) from April 2016 posed for many companies should not be underestimated. 50% of the Employment Trends Survey respondents reported that an immediate impact had been felt on their business.
41% are currently absorbing the extra wage burden by accepting a reduction in profits. Of course, this could have a knock-on effect on future investment. With 26% responding to the NLW by raising prices, this also creates unwelcome consequences as it will only force inflation to rise - all at a time when the exchange rate post-Brexit is beginning to bite.
Careful monitoring of the impact of the NLW is necessary
With the NLW set to rise up to 2020, 52% of respondents to the CBI Employment Trends Survey expect to see an impact on business. This is especially true for companies employing 250+, with 62% expecting to be impacted.
Planned responses to the NLW are varied. 30% plan to absorb the costs by accepting a drop in profits. But a similar figure (28%) plan to raise prices while a further 28% are looking to increase automation. 18% are looking to revamp their existing business models and the same figure expect to cut back on jobs. It is encouraging to see the range of responses that businesses are taking in addressing the impact of the NLW.
It is important that the impact is carefully monitored. The government must also be prepared to alter its plans for NLW implementation, if necessary, if the UK's economic success is not to be undermined in the coming years. However, the positive way businesses have responded – or are planning to respond – shows that are many reasons to remain confident that the challenges that lie ahead will be met.
The full People and Partnership CBI report is available in PDF form on the Pertemps Managed Solutions website.