Supermarkets could stop hiring over-25s to avoid national living wage, say analysts

Credit rating agency Moody’s warns big four may close stores or try to avoid employing people eligible for rise to £9 an hour by 2020

 A Tesco store in south London. The retailer says it supports the national living wage, but the rise is expected to hit supermarkets’ profits. Photograph: Carl Court/AFP/Getty Images

Graham Ruddick

Friday 31 July 201512.21 EDTLast modified on Friday 31 July 201519.02 EDT

Supermarkets could close stores and try to avoid employing over-25s to cover the cost of implementing a new “national living wage”, the influential credit rating agency Moody’s has warned.

Its research will raise concerns about the countermeasures big businesses could take to pay the national living wage, which was announced by George Osborne in the summer budget.

The minimum wage for over-25s, rebranded by the chancellor as the national living wage, will increase from £6.50 an hour at present to £7.20 in 2017, beforerising to at least £9 by 2020 under the chancellor’s plan.

Retailers expected to raise prices or cut jobs to pay for minimum wage

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The Office for Budget Responsibility, which produces independent forecasts for the government, has estimated that the national living wage will lead to 60,000 job losses and reduce GDP by 0.1% by the end of the decade. But it also warned that the response of businesses was “subject to significant uncertainty”.

In its new report, Moody’s claims 6m workers will get a pay rise as a result of the move. It said reaching £7.20 an hour by 2016 would “not be overly taxing” for retailers, but the impact of increasing pay to at least £9 by 2020 will have a material impact. Tesco profits will be 7% lower in 2017 and profits at Morrisons will fall 10% if the companies do not take mitigating action, Moody’s added.

It said Tesco, Asda, Sainsbury’s and Morrisons, which employ 750,000 people between them, could respond by closing stores, employing fewer staff in existing stores and hiring more under-25s, who are not eligible for the national living wage.

Supermarkets could also accelerate plans to expand their online operations, which require fewer employees.

Sven Reinke, a vice-president and senior analyst at Moody’s, said the national living wage could encourage Tesco, Morrisons and Sainsbury’s to “rethink their strategy of putting more people on shop floors to improve service and customer experience as a way to differentiate themselves from the discounters”.

The established grocers cut head office jobs in response to a slide in profits, but have increased staff on shop floors to boost customer service. Reinke said supermarkets could, in future, look to install more self-checkouts and automated systems to lower staff levels.

He said: “We also think rising wage pressures could accelerate the closure of unprofitable stores. For example, new super and hypermarket openings by the big four grocery retailers have come to an abrupt halt, but there have been very few closures so far.”

Tesco, Britain’s biggest retailer, said the company is supportive of the national living wage. A spokesman said in a statement: “At Tesco, we know it is important to reward colleagues well, and that’s why we pay one of the highest hourly rates in retail.

“But we firmly believe in offering colleagues a total reward package and our benefits include a 10% colleague discount, shares scheme and pension, which we know they really value.

“That said, in line with our approach of offering sector-leading pay and a generous benefit package to all colleagues, we are supportive of the introduction of the national living wage.”