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Could the national minimum wage increase force contractors to cut investment into services?

Pharmacy bodies have raised concerns over the increased costs pharmacies could face as chancellor Rishi Sunak announces the national minimum wage will rise from next April*.

Mr Sunak delivered the 2021 autumn budget and spending review yesterday afternoon (October 27) without mentioning community pharmacy.

However, he confirmed that the government will raise the current national living wage – for those aged 23 and over – by 6.6%, from £8.91 per hour to £9.50, starting from April 1. 

This will give two million full-time workers an extra £1,000 a year, the chancellor tweeted.

The national minimum wage for those aged 21-22 will also increase by 9.8%, from £8.36 to £9.18 per hour, while both 18-20 year olds and 16-17 year olds will see a 4.1% rise, from £6.56 to £6.83 per hour and from £4.62 to £4.81 per hour respectively.

Rates for apprentices will also increase by 11.9%, from £4.30 to £4.81 per hour.

However, having to pay higher minimum wages could leave contractors less able to invest in pharmacy services, The Association of Independent Multiple pharmacies (AIMp) CEO Leyla Hannbeck told C+D ahead of the budget on Tuesday (October 26).

“While our members as employers are happy for staff to get higher salaries, the only way contractors are able to pay higher costs is to reduce investment in other parts of their practice,” Dr Hannbeck said.

In an AIMp statement released after the address, she added that the minimum wage hike would further burden a sector “starved of adequate funding”, as it also grapples with “significant increase[s] in national insurance, energy costs, rents, other staff salaries, fuel, refit and maintenance”.


PSNC: “Particularly worried”


The Pharmaceutical Services Negotiating Committee (PSNC) raised similar concerns in a statement circulated yesterday evening following Mr Sunak’s address, saying that it is “particularly worried about the impact of spiralling business costs” that the rise in the national minimum wage could inflict on pharmacies.

“Unlike other businesses,” PSNC vice-chair Bharat Patel said in the statement, pharmacies cannot “pass costs on to consumers”. Many are “at breaking point”, having delivered “impressive efficiencies year-on-year”, he warned.

“We are concerned about the impact this will have on the services they offer and on which so many people rely.” he added.

“The chancellor’s vision for a high-wage economy and time of optimism must go hand in hand with support for this critical network of healthcare providers,” Mr Patel continued.

A National Pharmacy Association spokesperson told C+D that while the national wage increase is “welcome news” to pharmacy staff, it will also “mean increased costs for pharmacies” and highlighted “the need for fair funding for community pharmacies”.


Cuts to business tax rates


In his second budget announcement of 2021, Mr Sunak also announced a one-year 50% business rates discount for retail, hospitality and leisure properties. Up to 400,000 businesses will be eligible for the £1.7 billion tax cut, Mr Sunak said, calling it “the biggest single-year cut to business rates in 30 years”.

Revaluations on business rates will be conducted every three years instead of five, Mr Sunak added.

C+D understands that pharmacies will be entitled to rates relief, with guidance on eligibility to be released by the Treasury later this year.

Business rates were temporarily abolished for small UK companies, including pharmacies, during the pandemic.

PSNC director of pharmacy funding Mike Dent welcomed the relief business rate cuts would bring to independent community pharmacies, but noted that “overall, we expect the significant financial pressures on pharmacy businesses to continue”.

Dr Hannbeck highlighted that the discount would only be effective for one year, as “the chancellor made plain the government cannot afford to lose the annual tax take of £25bn”.


No mention of community pharmacy in the budget


No specific provisions were made in the budget to support community pharmacy.

Mr Patel said that “PSNC remains very concerned that community pharmacy’s bids” for an uplift to the global sum for the sector “have been rejected this year by the Treasury”.

Dr Hannbeck also said that AIMp had “raised concerns that [the five-year pharmacy funding deal] did not take into account any inflation or rising costs such as staff salaries”.

Meanwhile, Gerard Greene – chief executive of Community Pharmacy Northern Ireland – exhorted the Northern Ireland Executive to “ensure that community pharmacy is included within all the budgetary allocations made available to [it]”.

He also called for “immediate, and longer term sustained investment” in the pharmacy sector, to alleviate “the funding constraints” it operates under and place it on “more sustainable footing”.

*This article was updated after publication to include the national minimum wage rate increases

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