Can the National Living Wage be pushed too far and what are implications for Agriculture?

Friday, 31 May, 2019

Commodity Watch by UFU Senior Policy Officer, Chris Osborne 

The Agricultural Wages Act was introduced in Northern Ireland in 1948. The Agricultural Wages Board (AWB) was set up as an independent body, with a statutory obligation to set minimum wages for workers employed in Northern Ireland agriculture. 

Much has changed since then, with the introduction of the National Minimum Wage in 1999 and the National Living Wage (which applies to workers aged 25 and over) in 2016. This year, the Chancellor increased the National Living Wage (NLW) to £8.21 an hour, the 4th highest rate in Europe.

Consultation has opened this month on the next round of UK Minimum Wage rates. The Low Pay Commission have recommended an increase to 60% of median income (the level at which the Organisation for Economic Co-operation and Development defines as low pay), £8.61 an hour.  However, what is very concerning to the UFU is that the Chancellor of the Exchequer is considering a minimum wage at 66% of median earnings. Such an increase would equate to a National Living Wage of £9.61 in 2020/21. If introduced this will mean the UK could have the highest Minimum Wage in the world. 

One of the central tenets of the AWB structure in Northern Ireland is a set of pay grade bands, ranging from Grade 1 to Grade 6. These bands set out the hourly rates for agricultural workers, dependent upon experience and ability.  This meant that before the introduction of the NLW, the banding provided a benchmark, when we as employers’ representatives negotiated the annual wage increase.

This all changed with the introduction of the NLW.

Introduced in 2016 at £7.20 per hour, the NLW has increased by 4.16%, 4.85% and 5.60% over the following years. In contrast, inflation as measured by the Consumer Prices Index has been 2.7%, 2.4% and 2.1% over the corresponding period. If we look at 2019 on its own, it means that there has been a wage increase of 3.5% over the rate of inflation.  What this means is that it questions the point of the annual AWB negotiations, since we are essentially negotiating a further, unwarranted increase to a wage rate, which has already been subject to a statutory rise. This traction of wage increases is unreflective of where the Northern Ireland farming currently stands, such is the impact of uncertainty regarding rising input prices as well as Brexit and on-going commodity price volatility.

The Office for Budget Responsibility has warned that employers might struggle to pay staff a minimum wage at the £9.61-level and could result in job losses in the wider economy. Traditionally the farming sector have paid their employees very well, a reflection on the animal husbandry and crop experience they develop over the years and this would carry on regardless of whether or not the AWB is in existence. 

Many would argue that the UK Governments Minimum Wage Policy has been a success up until now and record employment levels in the UK would indicate so. However, what is clear is that you cannot legislate for higher wages. By pushing this policy to the extreme, further significant increases could affect labour-intensive employers, the very people the UFU represent.

In conclusion, this accelerating Minimum Wage Policy (NMW/NLW) has left the traditional method of calculating agricultural wage increases (i.e. based upon the cost of living) redundant. Wage increases are now out of the hands of the AWB and set by the Government. Consequently, we, as employers representatives feel that, whilst there may be a place for the AWB to continue to oversee working conditions, working hours and holiday entitlements, the Government have rendered basic wage negotiations unnecessary.