martin williams

Wholesale distribution will be among the UK business sectors worst hit by the national living wage, with wholesalers’ profitability severely threatened if proposed rises go ahead over the next four years.

That is the key finding from a report published this week by Capital Economics and commissioned by the FWD.

It found 30% of food and drink wholesalers’ staff will be directly affected by NLW, adding 0.7% to employers’ wage bills when the £7.20 rate for over-25s takes effect in April. Proposals to increase the rate to £9.35 by 2020 would see wages rise by between 2.6% and 3.7%, adding up to £59m to the sector’s costs, equivalent to 2,600 jobs.

Wholesalers surveyed say they will also need to raise pay brackets for those above NLW in order to maintain differentials, and will consider matching the rate for under-25s in equivalent jobs.

“Wholesalers run lean, efficient businesses on very low margind and don’t want to put their prices up in a competitive market,” said FWD chairman Martin Williams. “While we have always supported the minimum wage, we can’t absorb bottom-line cost increases of this size and frequency.”

Association of Convenience Stores’ Chief Executive James Lowman added the retailers who make up a significant proportion of FWD members’ customer base would be hit by a collective bill of £167m under the new proposals. This would result in some store closures, with other retailers stopping investment in their businesses, cutting staff hours, and not replacing staff as they leave.

FWD Chief Executive James Bielby said the Federation was working with trade associations representing similarly affected businesses. “We are assessing the cumulative impact of NLW across a wide range of sectors, and will demonstrate to the chancellor that his ambitions for the speed and scale of NLW rises will lead to job losses and business closures. We believe the rate of increase must be slowed, with the target of 60% of median earnings pushed back into the next parliament, or mitigated by other measures.”

The report, Delivering Employment, reveals the food and drink wholesale sector employs 70,000 people, with a high proportion of young people, women and ethnic minorities among the workforce. Wholesalers create £2.9bn of gross added value annually and pay £480m in taxation to the Exchequer.