George Osborne is renowned for his ability to put a positive spin on the most ambiguous of statistics, but not even the Chancellor can find a favourable frame for the UK’s dismal productivity figures. Recent ONS data showed Britain as having one of the worst levels of productivity among the G7 countries, with only Japan saving the UK from claiming the wooden spoon. In his foreword to a government report on productivity published last summer, Osborne admitted that the UK had a “productivity problem” and declared productivity to be “the challenge of our time”.
The irony will not have been lost on businesses who just a couple of months earlier had been left reeling by the Chancellor’s shock announcement of the introduction of a new National Living Wage, which came into effect this month and risks depressing productivity figures even further.
As a measure of output per worker, productivity is the ultimate indication of how much ‘bang’ you’re getting for your ‘buck’. But with the ‘buck’ increasing by a minimum of 50p per hour, what chance food businesses, who are among the most affected by the National Living Wage, seeing an equivalent increase in ‘bang’ from their workforce?
Businesses faced with paying their staff more have a number of options available to them if they are to maintain current levels of productivity. They can cut headcount in the hope that the remaining workforce can produce the same level of output either by working harder or finding more efficient ways of working. They can maintain headcount and hope that more highly paid employees will be incentivised to work harder and thus produce more. Or they can trim other benefits, such as overtime payments, so that the overall wage bill does not increase (just this week it’s been reported that the sandwich chain Eat has stopped paying its staff for their lunch break to compensate for the increase in basic pay).
There are other facets of the National Living Wage that present their own unique challenges. For instance, the new hourly minimum rate of £7.20 applies only to over 25s. With foodservice, in particular, employing a high proportion of young people compared with other sectors businesses are likely to encounter scenarios where two people doing identical jobs are receiving different rates of pay. In these circumstances, can they expect the young worker to be motivated to work as hard as a colleague who is being better remunerated?
These are questions that food companies will find themselves grappling with over the months ahead as the realities of the UK’s new pay regime hit home. Time spent finding solutions to the challenges presented by the National Living Wage will surely be time productively spent.
* A version of this blog was first published by Footprint magazine