George Osborne’s £7.20 “national living wage” is sending “shockwaves” through the labour market as employers seek ways to minimise the extra costs, one of Britain’s largest recruiters has said.

Manpower said its survey of 2,100 employers suggested many were scaling back recruitment plans for the rest of the year, with some blaming the new minimum pay for over-25s, which comes into effect next April.

Employers were attempting to avoid paying the new rate by using groups of self-employed workers or focusing recruitment on younger people. Others had put a block on new recruitment altogether, it said.

The effect was already being felt in the wider jobs market, with the outlook the least optimistic for three years and job prospects “dwindling” in the runup to Christmas.

The report follows accusations by employers’ groups that companies would come under severe strain from the chancellor’s living wage scheme, which he announced in the budget in July. Osborne said he hoped that by 2020 workers would enjoy a basic hourly rate of £9 an hour.

The CBI, a leading independent employers’ organisation, responded by saying a rise from the current minimum wage rate of £6.70 was a “gamble” that damaged Britain’s flexible employment market. Contractors to the public sector, especially in the long-term care sector, privately warned they will need to pass on the costs in higher charges to local authorities and the NHS.

James Hick, a spokesman for Manpower, said: “The national living wage is sending shockwaves through the UK labour market. An unintended consequence of its introduction is that firms might try to bypass the legislation altogether. We anticipate that some employers may look to mitigate the extra costs by taking on more young or self-employed workers, who are not entitled to the national living wage.





Support services firm Interserve recently announced that the extra annual wage bill for its 15,000 cleaners could amount to £15m, or 12% of its annual profits.

Mears Group estimated the cost of meeting the wage rises for its 4,000 care workers would be £5m, or 10% of its annual profits. “Faced with a wage bill of this size, some employers are thinking twice about taking on new workers,” Hick said.

Several industries have moved towards models of employment based on managing groups of self-employed workers. Logistics companies such as Yodel allocate deliveries to self-employed drivers who are paid according to the time spent or number of deliveries. Drivers work for several logistics operators to satisfy HMRC rules that prevent self-employed people working for a single employer.



Manpower expects the use of self-employed people to become more common in mainstream industries, especially where the internet allows workers to be managed remotely.

Living wage campaigners have argued that the minimum wage had little impact on pay rates when it was introduced in 1999 and said the living wage would be absorbed by employers.

But the UK has seen a surge in the number of self-employed people since 2001, which some economists have blamed in part on the minimum wage.

The Manpower report found the jobs market was worse in the north-east, north-west and Yorkshire and Humberside, which are lagging behind the UK average.

The north-east was especially badly hit by the slowdown, having been one of the last regions to recover after the banking crash of 2008. Steep cuts in public sector jobs have taken their toll alongside fears of higher wage costs from the living wage.

A fifth of workers in the north-east are employed in the public sector, the highest proportion in England, closely followed by Yorkshire and the Humber and the north-west. “The north-east has really struggled and the national living wage will compound problems it has experienced with the loss of public sector jobs,” Hick said.

There was a marked divide between job prospects in the north and those in London, showing that the government’s plans to rebalance the economy through the creation of a so-called northern powerhouse had so far failed to ignite, the report added.

• This article was amended on 8 September 2015. An earlier version said Yodel was part-owned by Amazon. Amazon owns warrants that give it the option of buying a 5% stake in the company, but to date it has not exercised the warrants.