Fears have been raised about whether small UK firms can afford to increase wages in line with the Government’s National Living Wage (NLW) target.
The expectation is that employers will increase the hourly minimum pay for staff aged 25 and over to £8.75 per hour by 2020.
Lobby group The Federation of Small Businesses (FSB) have called for that target to be reconsidered, following a string of poor economic data. Concerns have been raised about small businesses ability to pay for an increase in wages with inflation contributing to a four-year high in business operating costs.
Research by the FSB shows the majority (64%) of small firms impacted by the National Living Wage have stretched to meet the latest rise by taking lower profits.
Two in five (39%) small businesses affected have put up prices to cope with the latest increase to £7.50 per hour. A further quarter (24%) have cancelled or scaled down their investment plans, and a fifth have reduced staff hours (22%) or hired fewer workers (19%).
The findings also suggest the faster rising NLW is not increasing demand for younger workers. Less than four per cent of small businesses responded to the increase by hiring more workers under the age of 25, who are on a lower rate.
Mike Cherry, FSB National Chairman, said:
“Small employers have demonstrated their resilience in meeting the challenge set by the National Living Wage, with many cutting their margins, or even paying themselves less, to pay their staff more. In sectors where margins are tight, small firms are resorting to more drastic measures to cope with the NLW.
“It’s vital that the NLW is set at a level that the economy can afford, without job losses or harming job creation. Cost pressures on small businesses are building, and with most recent economic indicators underperforming, we are now facing the reality that the NLW target may need to be delayed beyond 2020.
“To prevent the growing costs of employment from stunting job creation, the Government should use its Autumn Budget to uprate the Employment Allowance and focus it on the smallest employers.”
Recommendations from the Low Pay Commission to the Government about the NLW are due to be made in the coming months before a final decision is announced by the Chancellor, Philip Hammond, in this year’s Autumn budget.