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UK Living Wage to Cost Private-Sector Employers $1B

Some U.K. retail workers are set to get a pay raise in April when the government’s new “national living wage” comes into effect, boosting the minimum hourly wage for all employees aged 25 and older from 6.70 pounds ($10.08) to 7.20 pounds ($10.83).

But a new report from the Regulatory Policy Committee (RPC) has said the increase could cost private-sector employers more than 804.4 million pounds ($1.2 billion) in direct costs, including 672 million pounds in wages ($1.01 billion) and 132.4 million pounds ($199.2 million) in associated non-wage labor costs, such as pension and National Insurance contributions.

George Osborne, the U.K.’s chancellor of the exchequer, announced the raise in his budget last summer and he plans to up the hourly wage to more than 9 pounds ($13.54) by 2020.

Commenting on the report, the Institute of Directors (IoD) has urged the government to come good on its promise of less red tape and regulatory hurdles and a lower rate of corporation tax to help employers absorb the additional costs related to higher pay.

“IoD members supported the introduction of the Chancellor’s living wage as part of a deal he made with business—lower taxes for higher wages,” said Seamus Nevin, head of employment and skills policy at the organization. However: “A new payroll tax, in the form of the apprenticeship levy, will cost employers 12 billion pounds (about $18 billion) over the course of the parliament, while the next tranche of pensions auto-enrolment will affect the very smallest businesses. This is not to mention a number of significant additional reporting requirements firms will have to comply with. The cumulative effect of these will be considerable, particularly for those medium-sized businesses that just meet the threshold for compliance.”

Late last year, activist groups such as Citizens U.K. and ShareAction began lobbying British retailers to “Stop Scrooging” and start to pay staff enough to live on. Likewise, in March, researchers at the University of Leicester reported that the country’s textile workers were being paid as little as half of the legal minimum wage.

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And while a recent government analysis of 1,000 companies found that the majority of respondents (93 percent) said they supported the new pay policy and 88 percent said it would make staff more productive, some stores plan to avoid spending extra by skewing younger and cheaper.

According to a survey conducted by The Independent, 23 of the country’s big-name retailers plan to save millions by hiring more workers under the age of 25 and paying them less than what the law will require workers above the cap to be paid.