How the new Living Wage will affect retailers

UK's low wage workers are to see the national minimum wage, which currently stands at just 6.50 pounds per hour, rise to 7.20 pounds for over 25s and rising to 9 pounds by 2020.

Whilst this is great news for workers struggling on a low income trying to survive in one of the most expensive cities in the world, the fashion and retail industry has warned its sector faces a huge rise in labour costs after the government's promise to raise the national wage.

From April next year, businesses will be required to increase the wage, with some high street retailers, like Next, already issuing profit warnings. Next has stated the National Living Wage will cost the business 27 million pounds each year from 2016 until the end of the decade.

Next will see its wage bill increase to 147 million pounds

Next year's increase will cost the business just 2 million pounds but thereafter the increases will be much higher, taking the total wage bill to 147 million pounds by 2020.

The retail industry is, of course, staffed by many low-wage workers. Boutique assistants and stockroom staff are some of the lowest paid jobs in the country, despite being part of a key sector to the UK economy. The fashion industry employs nearly 3 percent of the population at just under 800,000 workers. Many of whom are on the minimum wage.

The fashion industry contributes 26 billion pounds to the economy each year, but retailers are already warning they will have to take their own measures to avoid their employment costs soaring.

Some retailers could stop hiring over-25s

Some brands and retailers will avoid employing over-25s to cover the cost of implementing the new wage, the influential credit rating agency Moody’s has warned. The Office for Budget Responsibility, which produces independent forecasts for the government, has estimated that the national living wage will lead to 60,000 job losses and reduce GDP by 0.1 percent by the end of the decade. But it also warned that the response of businesses was “subject to significant uncertainty”

Next wasn't all pessimistic about the wage rise, however. “It should be noted that this is probably a pessimistic view of the required price rise as we have assumed no improvements in productivity,” the company said. “In reality,we hope to be able to compensate for some wage inflation through increased productivity throughout the business.”

Earlier this year London mayor Boris Johnson backed calls to take action on the scourge of unpaid internships blighting the prospects of young people in the capital. A spokesperson for the Mayor of London said: “The mayor is supportive of high quality paid internships, he encourages employers to pay the London Living Wage where possible and is proud that the Greater London Authority group pays the London Living Wage to all its staff, including interns and apprentices.