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City executives have warned that the UK minimum wage is bumping up against starting salaries for graduates at professional services firms, raising concern about the impact on hiring for accountancy, law and finance.
The warnings come as Chancellor Rachel Reeves is expected to announce in this month’s Budget a 4 per cent increase in the minimum wage to £12.70 an hour, which would lift the average salary for a minimum wage worker on a 40-hour week from £25,376 to £26,416.
The lowest graduate salary for roles in finance and professional services is £25,726 while the median is £33,000 and the highest is £65,000, according to data from the Institute of Student Employers.
Several chief executives have voiced their fears about the impact on recruitment if the minimum wage reaches pay levels for graduate positions in traditional white-collar jobs.
“Why would young people take on £45,000 of student debt if they can earn the same stacking shelves?” asked one. “It would actually be damaging for social mobility because only the people who can afford to pay their way through university will be immediately incentivised to do so.”
James O’Dowd, chief executive of recruiter Patrick Morgan, said that in areas such as audit, accounting and mid-tier consulting, pressure to raise pay to keep pace with the minimum wage was likely to accelerate automation and offshoring to cut costs as profit margins tighten. That, he added, would lead to “fewer opportunities overall”.
Steve Rigby, chief executive of software company Rigby Group, said that while the rising minimum wage was “a social achievement”, the jobs market was now “rewarding non-skilled labour over university-educated and indebted labour”.
City executives say they are increasingly trying to ensure young staff do not work long hours — traditionally a matter of course for new starters gaining experience — to avoid falling foul of minimum wage rules.
Charles Cotton, pay adviser at HR trade body CIPD, added that a growing number of firms were now having to “closely monitor” salary sacrifice schemes for healthcare, bicycles and company cars from pushing staff below the legal threshold for wages per hour.
Some employers who spoke to the FT voiced fears they would end up being “named and shamed” by the government for inadvertently paying below the minimum wage.
Successive regulators have urged the accounting industry to raise entry-level salaries, but junior pay rises have remained low over the past decade.
While pay for senior ranks at the Big Four accounting firms has soared, junior staff are paid much less as a result of the firms’ “pyramid” structures, with thousands of young workers hired each year but only a small number making it to a senior level.
However, graduates still apply in droves to work for the Big Four firms, attracted by their rigorous training and brand prestige, which can help boost careers in the long run.
A FTSE 100 chair said the further increases in the minimum wage, combined with higher employer national insurance contributions and the plan to introduce “day one rights” for workers meant hiring young staff, were a “high-risk venture”.
“The increase is now getting to levels where it is quite damaging for the rest of the workforce — the market is already shrinking, with the number of job vacancies being cut,” the chair added.
While graduates joining City firms may start on low salaries, they can typically earn more relatively quickly as they rise through the ranks and gain professional qualifications.
Will Holt, ICAEW managing director, said: “Landing a role with structured professional training built in may be more beneficial to their career prospects than earning a big pay cheque right from day one.”
However, Brett Dixon, vice-president of the Law Society of England and Wales, said: “When a newly qualified solicitor in a small firm earns barely more than the minimum wage, graduates in entry level jobs are likely to lose interest in pursuing a career in the legal sector.
“Especially considering the long hours needed in this field, legal careers may not seem attractive any more.”
Data visualisation by Amy Borrett