• Manufacturers warn national living wage is ‘risk to growth’

  • 11 Jan 2016
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Workforce restructuring on cards for many employers, finds sector body EEF

Employers in the manufacturing sector have voiced concerns about the negative impact of the national living wage (NLW) launch in 2016, according to an annual report from industry body EEF.

More than a third of manufacturers (36 per cent) see increasing pressure on business costs as a possible risk to growth this year, the EEF’s report found. Pressure is expected to come from a range of sources with 44 per cent of manufacturers foreseeing more risks than opportunities in 2016.

Nearly a fifth (19 per cent) of respondents said workforce restructuring would be their main response to the NLW. But surprisingly, only 5 per cent said they thought this would have a negative impact on workforce relations.

While the report said the majority of manufacturers already pay above the NLW rate, it highlighted concerns that more highly paid workers may seek a wage increase to retain pay differentials. It said there was also concern about future NLW rates post 2016.

Tim Thomas, head of employment policy at EEF, said although a small proportion of members would be directly affected by the NLW rates, for them the effect would be "considerable".

"For those members affected by the rates there will be restructuring, which will mean re-crafting and redesigning jobs, and potentially losing some jobs. That is for a small category of members.

"For a larger category of members, the impact will be a pressure to maintain pay differentials. Semi-skilled workers will want to see a pay differential in relation to the NLW. The knock-on effect is that skilled workers also want their differential maintained with semi-skilled workers. We are picking up indications of this ripple effect from members."

The report said manufacturers' top priorities for the year ahead would be to increase investment in innovation and technology to sell into new export markets.

A proportion of employers would also be reducing costs and improving organisational efficiency. These changes centre on organisational changes (35 per cent), workforce restructuring (34 per cent) and ‘across-the-board’ cost-cutting (31 per cent), which were all found to feature in manufacturers’ priorities for the year ahead.

Terry Scuoler, chief executive of EEF, said: "There is particularly good news about the number looking to prioritise investment in technology and innovation and those looking to explore new export markets. These are positive and proactive steps. At the same time, however, tough conditions call for tough decisions – and restructuring and cost-cutting efforts are clearly high on the agenda for some."

Metals manufacturers, which were among the worst affected by the challenging conditions of 2015, were most likely to be considering reforming organisational structure in 2016.

The report said that whilst upward pressure on pay was a concern for companies of all sizes, it topped the list for mid-sized companies.

Pension costs are also a source of pressure, especially for small companies where it is seen as the top business cost risk ahead of pay and regulatory compliance.

Despite the gloom, a third of respondents said they expected to see an improvement in industry (33 per cent) and UK economic conditions (32 per cent) in 2016, outweighing those expecting conditions to take a turn for the worse. A further 55 per cent said they expected to increase productivity this year.

The report also acknowledged that rising wages contribute to rising consumption, which could boost economic growth.

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  • Risk to growth of what? Managers' salaries? Maybe that is what is holding them back from understanding the real risks to growth of holding down wages.