Economic uncertainty must be factored in before recommending increases to National Living Wage next year, warns EEF

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EEF, the manufacturers’ organisation, has warned that economic uncertainty following the EU referendum vote must be factored in to any increases to the National Living Wage in April next year.

In a response to the Low Pay Commission’s call for evidence on the National Living Wage and National Minimum Wage, EEF says that economic conditions no longer support rapid rises, with a  ‘number of risks around the current forecasts for median earnings growth, particularly in the next two years’. 

It is urging the Low Pay Commission to revise its earnings growth forecasts, adopt a more cautious approach and recommend a modest increase in April 2017 as the economic impact of the referendum outcome remain largely unknown.

Ms Lee Hopley, Chief Economist at EEF, says: “Risks from the referendum outcome must be factored in before setting the growth trajectory for the National Living Wage. What was affordable before the current economic uncertainty and what will be affordable afterwards may be two different things. Ultimately, employers must foot this bill and they need to know that it is calculated in a way that is realistic, affordable and fair.”

In its submission, EEF agrees that a straight-line approach to earnings growth forecasts offers employers a degree of certainty about future rises. However, forecasts must be revised first to factor in current economic uncertainty. The body also points out that, for manufacturers, the new National Living Wage has ‘effectively become the pay base line’, but it recommends that other National Minimum Wage rates should be maintained at least in the short-term, pending future review.

The full submission can be viewed here.

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