Evidence on the minimum wage: Low Pay Commission (LPC) questions 2017

Transcription

1 Evidence on the minimum wage: Low Pay Commission (LPC) questions 2017 Please provide some information about yourself or your organisation. If possible, include relevant details about your location, the occupation or sector you are involved in, your workforce if you are an employer (including number of NMW/NLW workers), and anything else you think is relevant. 1. The food and drink industry is the largest manufacturing sector in the UK. Together with our food chain partners, we provide employment for nearly four million people and contribute 110 billion in GVA 1. We directly employ over 400,000 people with a GVA in excess of automotive and aerospace combined - while export sales exceeded 20 billion in Issues relating to the NLW and NMW are of great importance for FDF members in helping to maintain the competitiveness of, and employment levels in, the UK food and drink sector. FDF s evidence to the LPC is based on consultation with representatives from FDF members facilitated through its Employment and Skills Forum. We are also pleased to have had members host the LPC to a number of member sites, contributing to the evidence for this response. 3. FDF and its members value the importance of an independent LPC that provides evidence-based recommendations regarding NLW and NMW rates to government. The LPC should remain outside the remit of partisan politics, the independence of the LPC is critical to the reputation of the recommendations on the NLW and NMW. The LPC plays a vital role in recognising the need to protect the lowest paid without damaging employment prospects, whilst balancing rate changes against inflation, economic growth and the effect rises would have on businesses large and small. Impact of the National Living Wage and National Minimum Wage What has been the impact of the NLW since April 2016? The rate was set at 7.20 in 2016 and rose to 7.50 on 1 April Our critical interest is views or data on the initial effects on employment, hours and earnings. But we are also very interested in evidence on: pay structures (including premium and agerelated pay) and benefits, age structure of the workforce, outsourcing, differentials, progression, job moves, training, contract type, business models, productivity, investment, prices and profits. 4. FDF has found that since its introduction the overall impact of the NLW on larger food and drink manufacturing (FDM) companies has been limited and varied as the majority of roles were already paid the same as or above the National Living Wage. However, there has been an impact in three key areas: pay differentials; salary sacrifice schemes; and shift premiums offered to staff. 1 DEFRA Food Statistics Pocketbook, 2016 Food and Drink Federation 6 th Floor 10 Bloomsbury Way London WC1A 2SL Tel: +44 (0) Registered office as above. Registered in London with limited liability. Certificate of Incorporation no VAT number: The Food and Drink Federation seeks to ensure that information and guidance it provides are correct but accepts no liability in respect thereof. Such information and guidance are not substitutes for specific legal or other professional advice.

2 5. The impact on smaller FDM companies has been far greater. Many companies have found that following the introduction of the NLW, they have been unable to pay the Living Wage Foundation rate, which is something they prided themselves in doing. 6. FDM companies have seen the NLW increase take affect across the supply chain. FDM have found pressures from below in the food supply chain and they are facing cost increases from growers of food, labour providers and logistics companies as they see their pay-roll costs increase, but have been unable to pass on their own pay-roll costs as retailers have been rejecting any price increase that is not related to inflationary measures. Pay Differentials: 7. The introduction of the NLW has meant that the differential between unskilled and skilled workers has been reduced. Companies are still keen to ensure that this differential is clear and maintained as there is stigma around being placed on the lowest form of wage within companies. As a result, FDF members have had to change the pay structures when there is a rise to the NLW rates, increasing costs. As the base rate rises, companies are most likely to improve the higher pay brackets for the more skilled roles, to ensure these roles remain valued by the workers in them. 8. This becomes increasingly difficult the higher the base pay rises and risks hollowing out of certain role levels. Furthermore, as the base rate of pay rises, and they pay differential becomes less, fewer employees for members will be willing to take promotions, weighing up that the small amount of differential is simply not worth the added responsibilities. For example, an operator is now less willing to a team leader or supervisor. Salary Sacrifice: 9. Larger companies are disappointed that salary sacrifice schemes are not accounted for within the NLW calculations. To comply with NLW requirements, employers have to remove the lowest paid from these schemes. which means the lowest paid cannot benefit from the reduced NI contributions under salary sacrifice, and neither can the employers. 10. By failing to allow the lowest paid into salary sacrifice schemes the lowest paid are being penalised and face un-equal access to such schemes and they will see a reduced incentive to contribute into benefits like pension savings. Shift Premium: 11. FDF s members believe regular, guaranteed shift pay must be included in the National Living Wage and National Minimum Wage rates. Shift premium for many of our members employees is included within employee contract, and can only be changed with employee and employer agreement. Shift premium is very much embedded into their contracts as any other benefit provided. For many of our members the addition of shift premium has been negotiated with the employees unions and can add percent to their Food and Drink Federation Page 2

3 hourly rate, depending on the shift worked. 12. Each time there is a rise in the NLW and NMW, food and drink manufacturers have to increase their shift pay to maintain a differential between employees who work unsociable shifts and those who do not, increasing the pressure on employment costs. Employers are also having to reduce weekend overtime to avoid having to increase weekend pay in order and maintain a differential from the NLW. 13. To some members, each year the NLW increases will represent a cost in the millions added on to their pay-roll bill. For example, one member has projected by 2020 the added cost as 3 million per annum, but this is reduced to 1 million per annum once shift premium is added into the NLW calculation A number of FDF members have reported disappointment that they will now fall short of the 2020 projection outlined in the Autumn Statement following the decision by Government not to include shift premium in the NLW calculation. Members have reported that a failure to include shift premium into the minimum wage calculations could see the erosion of shift premium, as members are simply unable to afford paying such a premium to differentiate between the unsociable shifts with regular day shifts. To what extent has the NLW particularly affected certain occupations or industries, types of firms (small, large etc.), regions or groups (for example women, ethnic minorities, migrant workers etc.)? year olds What has been the effect of the minimum wage and the NLW on workers aged 21-24, particularly their employment prospects? 15. The impact on younger workers has been minimal for the food and drink manufacturing sector as we already pay according to the market and over the rate of the NMW for young people. 16. The priority for our industry remains to keep recruiting young people to replace the ageing workforce due to retire in the next five to ten years. An ageing workforce presents a pressing challenge for food and drink manufacturers. By 2024, over a third of the current workforce will be set to retire, meaning there will be a skills gap in the region of 140,000 people and an insufficient number of skilled individuals to replace these roles. To what extent are employers using the Year-Old Rate (set at 7.05 since 1 April 2017)? 17. Food and drink manufacturers generally pay based on skill/job band and not age and would therefore not necessarily use the under 25 rates. 2 This is based on projections set out in the March Budget Food and Drink Federation Page 3

4 18. However, having a lower rate for younger workers allows for flexibility with the initial/probation employment process for younger employees. It allows employers to place the prospective employee on a lower rate until they have moved onto full employee status, following their probation period. Young people (16-20 year olds) and apprentices What has been the effect of the minimum wage(s) on young people (aged 16-20), particularly their employment prospects? 19. Due to the skills level needed in the food and drink manufacturing industry and the health and safety environment we operate in, employers in our sector do not tend to employ many young people below 19 years of age. 20. The food and drink industry currently pays according to the market for both employees and apprentices, rather than the NMW and most FDF members already pay well above the NMW apart from a few entry level positions. What has been the effect of the Apprentice Rate on pay, provision and take-up of places, and training volume and quality? 21. As stated above, companies in the food and drink sector already pay well above the Apprentice Rate, therefore changes to this have not impacted our industry. As stated above, for this very reason some FDF members have questioned the need to have a specific rate of the NMW for Apprentices. 22. However, there is concern about the impact of the Apprenticeship Levy on the future of apprentice pay due to the large additional cost to businesses to administrate the levy. What has been the impact of the Apprenticeship Levy and the new funding model (introduced in April 2017 in England)? 23. The Apprenticeship Levy introduction has seen increased costs for some food and drink manufacturers who use labour providers to help employ staff. FDF members have noticed that labour providers unable to spend their levy funds pass on the cost in the form of a charge to food manufactures using their services for labour needs. Economic Outlook What are your views on the outlook for the UK economy, including employment and unemployment levels for the period to April 2020, focusing on the next 18 months? 24. FDF expects food and drink manufacturing to grow during the period up to April 2018 but at a slightly weaker pace. This in line with the revised down growth predictions for the UK economy, due to the increased political and Food and Drink Federation Page 4

5 economic uncertainty following the UK s decision to exit the European Union. Currently, 70% of the food and non-alcoholic sectors exports are to the European Union, making a significant proportion of the industry s exports reliant upon being inside the Single Market, creating a large degree of uncertainty for the sector in coming year s export markets. 25. The pound remains lower than its high prior the decision to leave the EU, which continues to help boost exports. However, at the same time we are seeing an increase in the cost of imported ingredients required for processing which is causing manufacturers to put hedges in place in the short term to control these rising raw material costs. In February, FDF consulted members in our quarterly confidence survey, the second since the EU referendum. The survey showed that 41% of the industry feel less confident than in October 2016, while 25% feel more confident. 90% of respondents cited increased costs for ingredients and raw materials had impacted their business. Whilst a lower pound creates increased exporting opportunities, it is unlikely that this will outweigh the added costs to raw materials. 26. Beyond April 2018, the outlook for the food and drink industry depends upon what business investments may occur in the preceding years. There may be a decline in business investment, particularly from overseas due to uncertainty about the UK s future trading relationships with the EU and other key trading partners. There is the concern that multinational companies may consider alternative European locations for investments, in order to access cheaper raw materials and skilled labour. Given the potential for uncertainty in investment, innovation and job creation, there are real risks to future industry growth in the medium to long term. 27. As an industry committed to developing innovation through both a dynamic workforce and high-tech machinery, we will need to recruit for roles in both engineering and processing to replace an ageing workforce. Latest UK Commission for Employment and Skills (UKCES) projections indicate that, whilst overall employment in food and drink manufacturing is set to shrink by 2%, the sector will still require 140,000 new recruits by 2024 to replace the existing workforce set to retire over the next five to ten years. 28. The food and drink manufacturing sector has seen a fall in employment numbers in recent years because firms have been increasing investment in innovation, such as high-tech machinery, technology and automation, and other measures to increase productivity. The sector has seen an 11% increase in productivity growth between and there will continue to be an increased focus to improve output per hour as labour costs rise. However, latest projections have seen this figure fall and from the sector saw a productivity growth of 3%. This is likely due to in productivity growth in the food and drink sector slowing over the last few years as a result of labour hoarding and a slump in automation. 29. Furthermore, food and drink manufacturers in the UK, like the rest of the agrofood supply chain, benefit from bringing in skilled Labour from outside of the UK. Around a third of the UK's food and drink manufacturing workforce are non-uk EU nationals almost 117,000 workers. FDF has already taken Food and Drink Federation Page 5

6 steps to ensure that the UK develops more homegrown talent, especially skilled food engineers and scientists, through ambitious graduate and apprenticeship programmes. However, workers from other EU Member States will continue to provide a highly valued solution in helping to close the skills gap. What is the broad economic outlook for your sector? Are there any significant changes, for example around tax or regulations, which are having an impact? 30. The introduction of punitive taxes, such as the apprenticeship levy and the soft drinks levy, have and will represent significant cost to the food and drink sector. Apprenticeship Levy: 31. The introduction of the Apprenticeship levy has meant many businesses have had to allocate resources to restructuring the way they go forward with their training schemes. As this coincides with the introduction of the soft drinks levy, it means a further significant cost to the industry. The cost incurred by this levy will not just be the top line 0.5 of the wage bill, but also the cost of restructuring their long-standing training programmes. Soft Drinks Levy: 32. The soft drinks industry levy, will cost soft drink producers 520 million in the year , 500 million in and 455 million in The Soft Drinks Industry Levy is a notable example of a food and drink specific Government policy which singles out one category with punitive taxation. More widely, Government s reporting requirement on payment policies was supported by large UK businesses, however as we reach the stage of implementation it has evolved to incorporate a degree of complexity. This is a significant and unnecessarily costly bureaucratic burden upon industry at a time when business confidence is already low. Skills Levy: 33. From April 2017, the Government introduced a skills levy, whereby companies will now be charged when they employ via the tier 2 route for non-eu migrants. They charge currently stands at 1,000 per employee. This has represented a significant cost to the industry, coupled with the two additional levies set out above. What has been your experience of wage growth and inflation in the last year and what do you forecast for the next couple of years? 34. Latest ONS Average Weekly Earnings (AWE) data 4 has shown positive wage growth at a broad sector level in April. The provisional figure, which includes 3 HMG Budget. March 16, Accessed May 15, _Web_Accessible.pdf. 4 Source: ONS - EARN03 Average Weekly Earnings - Not Seasonally Adjusted Average Weekly Earnings - Growth Including Bonuses, Including Arrears Food and Drink Federation Page 6

7 manufacturing of food products, beverages and tobacco, increased by 2.5% (y-o-y) compared with a 0.7% increase in March. 35. There is pressure to push up pay settlements in the food and drink sector. Despite AWE starting the year well, the effects of low inflation are now being felt by food and drink manufacturing employees, who are starting to see wages decline. If inflation is set to rise to its target rate, we would look for wages to increase at a similar trend. However, with the uncertainty of the UK economy, firms may prefer to hold off on wage increases until markets settle again and the investment outlook recovers. What is your assessment of the effects of the UK s decision to leave the EU, since the referendum in June 2016 and in the future? Has it or will it affect you? 36. It still remains too early to say how the decision to exit the European Union will affect pay decisions but there are real concerns about the access to labour and how this may influence company investments. Whilst we had expected a gradual pick-up in earnings growth for food and drink manufacturers, in line with recent trends, this is now much less clear after the vote to leave the EU. A weaker pound could feed through into higher nominal earnings growth, but this also has the potential to be offset by weaker economic growth and weaker labour demand after Brexit. Furthermore, the repercussions of a weak pound have meant that food and drink companies that import have seen their costs raise substantially. 48% of food consumed within the UK are imported from overseas. 37. Rising import cost and the declining value of the pound have been more about inflationary costs and have thus been offset with consumer price increases. But, there is only a certain amount companies can offset this added costs with price increases before it becomes unviable to do so. With the increasing wage costs to companies, their avenues for offsetting these costs become narrower and is likely to reduce profit margins, which in turn will impact on future investment and hiring choices. The higher the cost of employing people, the more companies will begin to look automating their processes to make them more efficient and cheaper. 38. UK food and drink manufacturers face a number of challenges including changing shopper habits, supermarket pricing pressures and the drive to adapt products for health to help address obesity. The tough trading conditions connected to retailing are likely to result in slow revenue growth for food and drink manufacturing in the next few years if consumer habits remain the same. 39. A decline in food and drink manufacturing output in the first two months of 2017 was reversed in March and April, after a 2.4% and 1.6% increase on the same month a year previous for our sector was reported. Future rates of the NLW and other minimum wages Food and Drink Federation Page 7

8 What are your views on future rates of the minimum wage (the current structure covers workers aged 25 and over, year olds, year olds, year olds, apprentices, and the accommodation offset)? 40. FDF supports calls for the LPC to continue its current trajectory of getting the NLW to 60% of median earnings by This approach continues to give employers a degree of certainty about future rises and allows them to better plan for the future. This should continue to remain subject to economic shocks such as the impact of Brexit of which are still unknown among manufacturers. 41. FDF also supports call for the LPC to explore the options for the NLW post including proposals to increase the NLW in line with increases to median earnings. With companies already planning ahead to 2020 and beyond, questions are already being asked about what will happen next. As well as looking at the case for this, the LPC should also review the impact this would have on the other national minimum wage rates. Compliance and enforcement What issues are there with compliance with the minimum wage? Has the NLW affected compliance and enforcement? Are there any other trends, for example in particular sectors or among particular groups? 42. Compliance issues centre on having to accommodate both the standard rate for NMW and apprentice rate for the NMW for your workforce. Moving away from the latter means that compliance becomes simpler. Food and Drink Federation Page 8

9 ANNEX 1 The UK Food and Drink Manufacturing Industry The Food and Drink Federation (FDF) is the voice of the UK food and drink manufacturing industry, the largest manufacturing sector in the country. FDF has over 300 companies in membership 5. The industry as a whole has a turnover of 95.5bn, which is 19% of total manufacturing turnover, and Gross Value Added (GVA) of 28.2bn 6. The industry employs around 400,000 people. Exports of food and non-alcoholic drink are a valuable part of the industry, amounting to a worth of 13.8bn in 2016, while exports of all food and drink exceeded 20bn for the first time. Exports of branded goods have also increased, up 11.5% on 2015, reaching a worth of 5.2bn in The following organisations are member associations and work closely with the Food and Drink Federation: ABIM ACFM BCA BOBMA BSIA BSNA CIMA EMMA FCPPA FOB GFIA PPA SA SNACMA SSA UKAMBY UKTIA Association of Bakery Ingredient Manufacturers Association of Cereal Food Manufacturers British Coffee Association British Oats and Barley Millers Association British Starch Industry Association British Specialist Nutrition Association Cereal Ingredient Manufacturers Association European Malt Product Manufacturers Association Frozen and Chilled Potato Processors Association Federation of Bakers Gluten Free Industry Association Potato Processors Association Salt Association Snack, Nut and Crisp Manufacturers Association Seasoning and Spice Association UK Association of Manufacturers of Bakers Yeast United Kingdom Tea & Infusions Association Ltd FDF delivers specialist sector groups for members in the following areas: Biscuit, Cake, Chocolate and Confectionery Group (BCCC) Frozen Food Group Ice Cream Committee Meat Group Organic Group Seafood Industry Alliance 5 For a full list of FDF members please see: 6 Industry data includes alcohol unless stated otherwise: Data sources: ONS, Annual Business Survey 2015 and Her Majesty s Customs & Excise. Food and Drink Federation Page 9