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Home Retail Group and others see share prices fall after Budget

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Some of Britain's best known retailers have seen their shares fall in value after they were told by the government to pay their staff more.

Millions of pounds have been wiped off the value of chains like Sainsbury's, Debenhams and Argos owner Home Retail Group over fears about soaring staff costs from the new National Living Wage, which will hit £9-an-hour by 2020.

Chancellor George Osborne said he had acted to cut business taxes but in return firms have to pay higher salaries.

Firms which employ a lot of people on the minimum wage face a big increase in costs when the National Living Wage is introduced from April next year.

The Office for Budget Responsibility estimates it will lead to 60,000 fewer people in work by 2020.  It said the options for businesses affected by higher wage costs include:

- reducing the number of hours worked by their existing employees
- reducing the number of people employed, either by firing existing employees or by hiring fewer people until attrition has reduced the workforce by the desired amount
- changing the composition of their workforce, potentially by replacing those who are 25 years old or older with those aged 24 or less
- increasing prices in order to pass on the higher wage costs to their customers.

The National Living Wage will be compulsory from next year, designed to force employers to pay their workers properly instead of living the taxpayer to top up incomes through the benefit system.

Mr Osborne used yesterday's Budget to announce that from April employers will have to pay everyone over 25 at least £7.20 an hour - rising to £9 by 2020.

It is much higher than the £6.50 minimum wage currently paid to over-21s.

Official forecasts suggests the new higher rate will cost 60,000 jobs, as employers sack staff to cover the higher wage costs.

At lunchtime today, Debenhams shares were down 3.7 per cent, Sainsbury's shares were down 1.2 per cent and Home Retail Group down almost 1 per cent.

Retail analyst Clive Black at Shore Capital warned the costs from the new wage proposals could be a 'major challenge' to large employers, such as supermarkets, as well as pub companies.

Pub giant Greene King fell yesterday and was down another 1 per cent today.

Mr Black said it could mean higher prices for consumers as retailers look to pass on the costs, while also making it more attractive to employ under 25s who not entitled to the living wage.

John Harding, employment tax partner at PricewaterhouseCoopers, said businesses needed to prepare for a 'significant increase' in staff costs.

He added: 'Although this increase will only affect the over 25s they do make up a significant proportion of employees who are either on or just above the current national minimum wage. 'Particular sectors affected will be retail, hospitality and cleaning, which make up over half of all employees on the national minimum wage.'

Experts at Exane BNP Paribas said supermarkets might need to raise wages for store and logistics staff by around 5 per cent over the next five years.

They added discounters such as Aldi and Lidl will fare better as they employ fewer staff.

Mr Osborne argues there is a 'new contract' between business, the public and the state to reach his aim of a low welfare, low tax, high wage economy.

He told Sky News: 'It says to businesses 'we are going to cut your taxes but you have to pay higher salaries'.

'It says to people 'we are going to make sure you get a proper wage, a National Living 'age, but there are going to be less benefits'.

'And it says to the country 'we are going to spend less but we are going to live within our means and have economic security'. And I think I think that new contract, that centre of British politics is going to be a settlement that the country is happy with.'

Source : Matt Chorley - MailOnline

10 July 2015

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