Whitbread warns living wage will lead to price rises

Whitbread is to raise some prices throughout its chains of hotels, restaurants and coffee shops in response to the government’s new “national living wage”, becoming one of the first UK companies to outline how it will cope with the policy.

The owner of Premier Inn and the Costa Coffee brand said it was developing plans to deal with a “substantial cost increase”. Employers will be required to pay £7.20 an hour to workers over the age of 25 from April, rising to £9 an hour by 2020, replacing the £6.50 minimum wage.

“We shall mitigate this substantial cost increase over time with a combination of productivity improvements, boosted by investment in systems and training, efficiency savings and some selective price increases,” the FTSE 100 leisure group said in a statement to the stock market.

Although Whitbread estimated the increased wage bill will cost an additional £15-20m annually, it said there were no plans to cut jobs.

“Our fast-paced growth means we are creating around 3,000 new jobs in the UK every year,” the company said.

Whitbread said it would give more details of the plans with its interim results on October 20. The company employs more than 45,000 people in the UK and its other brands include Brewers Fayre, Beefeater Grill and the Table Table pub restaurants.

Announced with fanfare in George Osborne’s emergency summer budget following the general election, the rise in the minimum wage has faced criticism from employers’ organisations, which say it will cost jobs.

The CBI employers’ organisation has warned that the retail, hospital, social care and outsourcing sectors would be hit the hardest. It said some employers may reduce workers’ hours as a result.

One of the UK’s leading recruitment companies has said employers were already scaling back recruitment plans and job prospects were at their weakest since the final quarter of 2012.

“The national living wage is sending shockwaves through the UK labour market,” said James Hick, managing director of ManpowerGroup Solutions UK, which surveyed 2,100 employers.

The Office for Budget Responsibility estimates that the extra costs could mean up to 60,000 job losses. The Treasury said the OBR expected the national living wage to give a direct boost in wages for 2.7m low-paid workers.

The findings from Manpower came as the head of the UK’s biggest small business organisation warned that measures introduced in the summer Budget risked damaging growth.

“The recent Budget left many small firms with real challenges to overcome in how they operate in future,” said John Allan, who chairs the Federation of Small Businesses.

Trade unions and charities have also attacked the national living wage policy, which they say falls below the real cost of living and unfairly excludes younger workers. According to calculations by the Living Wage Foundation, the rate for areas of the UK outside London should be £7.85 per hour.

Whitbread delivered the warning as it posted a 3.3 per cent increase in like-for-like group sales in the 11 weeks to 13 August, led by particularly strong growth at Premier Inn, the budget hotel chain, of 4.3 per cent during the period.

Greg Johnson, analyst at Shore Capital, said the trading update highlighted a “modest slowdown”.

“The performance was slightly below expectations but first-half trading is consistent with our full-year expectations of 3-4 per cent growth,” he wrote in note to clients, along with a forecast £556m in pre-tax profit for this year.

Whitbread posted a 33.7 per cent rise in pre-tax profit last financial year at £463.8m, on revenues of £2.61bn.