John Lewis blames national living wage for profit plunge

Retailer warns of job losses to fund salary rises, but government expected to resist calls to rethink further increases

John Lewis plans to continue paying more than the national living wage (NLW), despite blaming the introduction of the new minimum rate for a dramatic fall in profits.

The retailer reported profits of £56.9m in the half year to July, down 75 per cent on the previous six months, and said it anticipated job losses as a result.

The high street department store, pointed to additional pay increases linked to the introduction of the NLW in April as a key cause of its financial worries. Raising wages across the partnership, rather than just for the lowest paid, had led to a £33m hike in staff costs, John Lewis said.

The new NLW of £7.20 per hour for over 25s may rise to £9 per hour by 2020, depending on economic conditions. In a statement, John Lewis said:

“Higher pay depends on better productivity and greater contribution, and we anticipate that this will mean we will have fewer partners over time as compared to today.”

John Lewis is the latest business to suggest the NLW has had an effect on its bottom line. While many have praised the salary boost for the lowest paid, there has been a backlash among smaller firms in particular. According to a Federation of Small Businesses survey, 16 per cent of its members recruited fewer people after the NLW was introduced, nearly a quarter slashed staff hours and 23 per cent cut back on investment.

In general, however, employers appear to have adapted to the new minimum wage without significant job losses to date. Employment is at its highest level for 45 years according to latest ONS figures and many businesses have already made adjustments to cope with the NLW.