HARMONISATION OF THE MINIMUM AND LIVING WAGE
14 December 2023
In March 2023, Chamber wrote to Minister Alinson and Minister Johnston asking for an impact assessment on the harmonisation of the minimum and living wage. The following sets out why and what Chamber asked for:
Why are we asking now?
1. Government has adopted an April 2025 transition to living wage, which will take double-digit annual wage inflation into many local sectors for 2023, 2024 and 2025
2. This has been done without any economic impact assessment, or consultation with local businesses and with runaway inflation in the economy
3. None of the recent events, pandemic, war in Ukraine, cost of living crisis were factored in to the original policy decision
4. The potential negative impacts are job losses, stubborn inflation, and a loss of competitiveness relative to the UK
5. The sectors likely to be impacted (to varying degrees) are hospitality, visit, retail, care, agriculture, distribution, construction, charities and engineering & manufacturing
6. The result could be the exact opposite of that intended – poorer members of society being priced out of jobs and landing up on jobseekers.
7. Worth noting that government has not increased social security benefits in line with minimum wage increases. If Government can’t afford big increases, why do they think businesses can?
8. To note, no one at Chamber is against improving the lot of the lowest paid, but it needs to be done in a way that is affordable and sustainable.
9. The report used by the Poverty Committee was based on businesses that are not representative of IOM, micro business lead, landscape. Also. less than 1% of UK businesses are signed up to the Living Wage Foundation who produced the data.
10. Spending on a report is money well spent if it avoids a potentially disastrous outcome. Consultants may be able to shape the policy so that it works alongside other economic levers to deliver the desired outcome.
What are we looking for?
1. Validation & Review of evidence used by Policy committee in 2021 and subsequent research in current business climate in GB of impact of rising labour costs in businesses
2. A modelling exercise of the likely impact of harmonisation in terms of the Social Benefit (driver for Politicians) versus the Cost to Business, their customers and Economy (not calculated when Policy was made)
3. A cumulative impact model to track all increasing costs faced by IOM business since Policy made (Late 2021) versus Treasury forecasts at the time and what the impact of all of these cost increases is likely to be , on top of harmonisation in 2025.
4. A collaborative approach on doing this so members and those in the wider economy understand that both sides treat this matter seriously, urgently and for the greater good of the Economy.
Outcome Options
1. All looks okay and doable so Policy stays
2. The level of business closures and failures is catastrophic and leads to widespread job losses, unemployment (amongst lower skills) and benefits rise substantially
3. A different level of phasing is introduced to allow businesses and social policy to grow towards harmonisation over a longer period & adapt business models
4. Treasury intervene to financially support a transition
5. Something else?
Click here to view the original document that Chamber submitted in March.