EEF response to the LPC 2016 consultation on the NLW and NMW

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EEF has submitted its response to the Low Pay Commission 2016 consultation on the National Living Wage and National Minimum Wage.

Overview

Implementation of the National Living Wage (NLW) has not been overly onerous on manufacturers, with the majority paying most of their employees above £7.20 before the NLW was implemented. That said, we did see an increase in queries from employers on the elements of pay that count towards the NLW. We also know that a limited number of companies have made changes to terms and conditions, employment and hours to ensure their businesses can afford the National Living Wage in the future.

National Minimum Wage (NMW) rate increases have had an even smaller impact. Manufacturers pay structures are generally based on job role, skill level and experience of employee and not age. That said, we are unsure whether some employers may move towards age-related pay if affordability of the NLW becomes a problem.

The apprentice rate does not impact our industry. Manufacturers welcomed the most recent rise and would not see a further increase as problematic. An increase to the apprentice rate could be a useful lever to drive quality following the forthcoming introduction of the apprenticeship levy.

The result of the EU referendum has influenced our submission this year. While we have said that the introduction of the NLW has not been onerous, there is now concern around affordability at least in the short-term. This concern is exacerbated by recent EEF research revealing manufacturers plans to review recruitment and investment plans following the referendum.

The LPC should revise its projected earnings growth forecasts before adopting a straight-line approach to the NLW. Earnings growth may be slower, particularly in the early years due to the uncertainty following the EU referendum result. The LPC should therefore only make modest increases in year one (April 2017).

Recommendations

  1. The LPC should revise its earnings growth forecasts before pursuing a  straight-line approach to the NLW

  • A straight-line approach offers employers a degree of certainty about future rises.

  • However, the LPC’s current earnings forecast needs to be revised before this approach is adopted.

  • The economic uncertainty following the EU referendum result, means the conditions are no longer in place for a more rapid pace of increase compared with those in the LPC’s consultation document. The LPC should act cautiously when recommending increases to the NLW in April 2017.

  • There are a number of risks around the current forecasts for median earnings growth, particularly in the next 2 years. If, growth should be weaker, the proposed increase (in the consultation document) would be in excess of what would be required to meet the target of median 60% of earnings by 2020.

     2. The other National Minimum Wage rates should be maintained at least in the short-term

  • Manufacturers do not use the other national minimum wage rates and instead use a pay structure based on job role, skill level, experience of employee and so on. The new NLW has effectively become the pay base line.

  • That said, we are unsure of manufacturer’s plans to use age-related rates at least in the short-term given the level of uncertainty and low confidence within the industry.

    In the short-term the other NMW rates should be retained with a view to review the structure again.

     3. An increase in the apprentice rate could drive quality

  • Manufacturers pay well over the apprentice rate and have welcomed recent increases.

  • Manufacturers have raised concerns that the forthcoming apprenticeship levy could impact quality.

  • An increase to apprentice pay could be a useful lever to retain quality and increase demand.

Download our full submission below.

Author

Head of Education & Skills Policy

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