Following the announcement that the national living wage is set to start at £7.20 for over 25s in April and rise to £9 by 2020, small firms are expecting to slow their hiring and raise their prices.
According to a survey released today by the Federation of Small Businesses (FSB), a significant number of small businesses are expressing concerns about the national living wage.
38 percent of employers are expecting to see a negative impact on their businesses and 50 percent of firms stated that they would raise their prices.
A further 52 percent stated that they would hold off recruiting and just 6 percent believed that it would have a positive impact on their businesses.
29 percent of businesses surveyed expect to absorb the cost through reduced profits.
In order to manage their budgets many small businesses plan to cut staff hours, reduce the number of staff, cancel /or postpone investments and cut or freeze the wages of higher earning staff members.
Businesses in the retail, wholesale, hospitality and food sectors are expecting an adverse effect from the rise.
Additionally those in ‘Yorkshire, the West Midlands, Wales and the South West are among the most likely to site a negative impact’.
Today, the FSB also published their Cost of Employment Index, estimating that for a small business with six full time staff currently earning the national minimum wage, the additional cost of paying them the national living wage will be another £5,900 a year.
According to the Index, the average annual cost of labour for businesses stands at approximately £127,700.
Even after employers have claimed the Higher Employment Allowance (set to increase to £3,000 next year) these costs are still set to rise to £133,600 in April, leaving business owners to cover the added costs.
The national chairman of the FSB, John Allan stated that:
‘Over half of our members already pay their staff above the voluntary living wage, but those that don’t are often operating in highly competitive sectors with very tight margins.
‘In many of these industries, the only sustainable way to deliver real long term wage growth is to improve productivity. Without improved productivity there is a real risk that higher enforced statutory wages will lead to fewer jobs being created, fewer hours for existing staff and unfortunately in some cases, to job losses’
‘It's important that the independent Low Pay Commission continues to play a central role in setting the minimum wage – and that includes deviating from the Government's plan to raise the National Living Wage to over £9 an hour by 2020, if it becomes apparent that the economy cannot afford it.’
The FSB’s recent research shows a dip in confidence in the wake of the summer budget and it seems likely that with these forthcoming changes, including the national living wage, changes to taxes, and auto enrolment in pensions it will add to the pressure on small business budgets.
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