Living Wage (Farmers)

Helen Whately Excerpts

Wednesday 28th October 2015 Westminster Hall

[Gordon Henderson]

Yes, and I will come on to discuss how we might resolve that later in my speech.

The second thing I want to emphasise is that, like me, farmers in my constituency and beyond support the principle of a living wage. Nevertheless, they are concerned that, because of a number of challenges unique to their industry, they will be forced out of business, not by the national living wage directly, but because they will be unable to compete with cheap imports from countries where farmers will not have to pay their workers as much as their British counterparts.

[Helen Whately (Faversham and Mid Kent) (Con)]

I thank my hon. Friend from Kent for calling for this debate and setting out the case very well. Fruit farmers in my constituency are also worried about the effect of the living wage, although they also very much support it and often pay experienced workers well above it. They are worried that it will increase their labour costs by perhaps 11%, when they make margins of only around 1% or 2%. I feel strongly on their behalf that the Government must look at mitigating the impact if we want to maintain a successful British fruit industry.

[Gordon Henderson]

I am pleased that my hon. Friend and fellow Kent MP has raised that important issue, because I will be dealing with it later in my speech.

Another problem faced by farmers is foreign competition, which has made things worse. Their main customers are supermarket chains that are notoriously hard-nosed when it comes to price negotiations: they always look for the cheapest suppliers, whether or not they come from this country. It is inconceivable that supermarkets will, without protest, allow farmers to pass on the increased labour costs they will be forced to pay. The supermarkets will simply buy cheaper, imported produce.

Many of the workers employed by farmers are seasonal. Traditionally they were students who, because they were generally under 25, would not be covered by the national living wage, but the supply of home-grown student workers dried up and was replaced by foreign workers, many of whom came to this country under the seasonal agricultural workers scheme. Sadly, two years ago the Government scrapped SAWS, a decision that will exacerbate the problems faced by farmers if they are forced to pay the living wage.

Some farmers will look into introducing even greater mechanisation in order to reduce their labour costs. There is little doubt that such a move will inevitably lead to fewer staff, so it is highly likely that an unintended consequence of the national living wage will be a rise in unemployment among farm workers. Of course, some farming sectors do not lend themselves to mechanisation, and horticulturists such as soft, top and stone-fruit farmers are in that category, which is why they face the biggest challenges. As I said earlier, some of those challenges are unique to farmers. For instance, they have to deal with the vagaries of the supermarkets, which, in addition to demanding unsustainably low prices, have been known to reject a delivery of perfectly good crops as imperfect, simply because they still had some of that crop in stock from a previous delivery.

Farmers have to contend with unpredictable weather, which can decimate their crops. They also have to contend with the additional costs associated with the sale and delivery of highly perishable products and, as I have pointed out, competition from foreign imports from EU countries such as France that are becoming even cheaper because of the fall in value of the euro against sterling.

Farmers are not like widget manufacturers: they cannot just buy in components to produce goods; they have to plant crops, nurture them and eventually harvest them. Top-fruit farmers face a particular problem, because when they plant trees they are unlikely to have a saleable crop for three or four years. When considering whether to invest in new trees, a farmer needs to be confident that he or she will be able to sell the eventual crop of fruit profitably. Such farmers believe that the national living wage will make that very problematic. There are farmers in my constituency who planted fruit trees last year based on the understandable assumption that, over the next few years, their wage costs would be in line with the trend in the minimum wage seen over recent years. Imposing the new living wage on those farmers, without consultation or warning, will put their financial stability in jeopardy unless mitigation is forthcoming from the Government.

I accept that it was announced in the summer Budget that the cost to employers of paying the living wage would be offset by changes to corporation tax rates. The problem is that in the horticultural industry a reduction in corporation tax will not have the beneficial impact that the Government suppose, because 95% of producers are sole traders or partnerships, for whom corporation tax is not payable. Similarly, although the increase in the employment allowance will reduce employers’ national insurance contributions, that will have little effect on horticultural businesses because, typically, they employ relatively large numbers of workers, and the change to the employment allowance applies only to a business, not to the number of workers employed.

Although horticultural businesses employ large numbers of workers, they are, in the main, low-turnover small and medium-sized outfits.