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Chamber response to minimum wage report | Sept 2024

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05 September 2024

See below Chamber response to the recently released minimum wage report: 

Businesses still have major concerns about minimum wage proposals

Businesses have major concerns about the short and long-term economic impacts of proposals to harmonise living wage and minimum wage rates.

That’s the view of Isle of Man Chamber of Commerce which is again highlighting this issue following recent news coverage about a detailed report commissioned by the Island’s Minimum Wage Committee. It revealed that plans to increase the minimum wage to £13.73 in April 2025 could cost private and third sector businesses up to £188million. Overall, the report highlights some potential benefits, but also reflects business community concerns about potential negative impacts.

While businesses support moves to help lower paid employees, says Chamber, the proposed increase will have an impact that is not in the Island’s long-term economic interests and could lead to more redundancies and business closures. Most importantly, the Island’s biggest business network says many employers that are already under extreme financial pressure need more time to phase in the changes. Chamber is urging Government to reconsider the April 2025 deadline to bring in the new minimum wage rate and look at what support could be provided to help businesses offset some of increased costs caused by the rise.  

Chamber CEO Rebecca George said: “Chamber appreciates the good motives behind Tynwald and Isle of Man Government’s commitment to transition to the minimum wage by April 2025, but there are still widespread concerns in the business community. While the objective of harmonising the minimum wage with the living wage aligns with broader social policies Chamber, acting on behalf of the business community, has major concerns regarding the proposed timeline and its potential economic ramifications. Increasing the minimum wage hourly rate to £13.73 in April 2025 would represent an increase of 28% when compared to the 2023 rate of £10.75. The proposed increase is approximately 14 times greater than the current inflation rate which is around 2%. The living wage increases are also above the inflation rate, and the combined effects of these disparities will make IOM businesses less competitive. But businesses are also concerned about the speed at which the new minimum wage rate is being introduced and the difficulties it creates in terms of employers maintaining financial sustainability.”

The Minimum Wage Committee report (which was conducted by London-based firm Pragmatix Advisory) also highlighted that the impact of any wage increase for lower paid workers would be diluted by an increase in tax and National Insurance paid by this group. It’s important to note, says Chamber, that while the IOM minimum wage has risen by around 38% since 2018, personal allowances have risen by only 9% over the same period.  

Increasing the minimum wage by 28% on the Isle of Man could have several significant impacts (especially on the retail, hospitality and care sectors). There are many concerns within the business community, with the following 3 being the most important in Chamber’s view:

  1. Economic disruption and job losses: A sudden wage hike of this magnitude could lead to significant economic disruption, particularly in the retail, hospitality, and care sectors. Many businesses, especially smaller ones, are likely to struggle with higher labour costs, potentially resulting in job cuts, reduced hours, or even closures. Historical precedents from other regions indicate that such increases often lead to a decrease in entry-level positions, disproportionately affecting young and less experienced workers.
  2. Inflationary pressures and price increases: To offset rising payroll expenses, businesses will be compelled to raise prices on goods and services, contributing to inflation. This, in turn, could alter consumer behaviour in an already challenging cost-of-living environment, dampening spending and further straining the local economy. The ripple effects on the supply chain then exacerbate these pressures, impacting a wide range of sectors.
  3. Need for gradual implementation: To offset this, a phased approach to the wage increase is crucial to allow businesses time to adjust and avoid sudden economic shocks. Implementing this rise too quickly leaves businesses with little time to adapt, making them more likely to react negatively with cuts rather than changes to business practices or efficiencies, leading to unintended negative consequences across the economy. Delaying the implementation would provide a more stable environment for both employers and employees.

Overall, says Chamber, while higher minimum wages can improve living standards for workers, the impacts on a number of sectors in the Manx economy are likely to vary depending upon individual business models, market conditions, and consumer responses.