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National Living Wage hits small business costs

 

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OCT 2016

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According to new research by the Federation of Small Businesses (FSB), almost half (47%) of small business owners cite wage increases following the introduction of the National Living Wage (NLW) as the main contributor to the rising cost of doing business.

After the introduction in April of a compulsory minimum wage of £7.20 an hour for over-25s, the Federation of Small Businesses said that nearly half its members cited higher salaries as their biggest cost increase.

The research has revealed that a third of FSB members claim that the NLW has led to a small increase in their wage costs.  One in five said that labour costs had risen “significantly” as a result of the policy, FSB research found. The lobby group warned that some had reduced prices or cut investment plans “in order to stay afloat”.

Although 59% of FSB members have absorbed the increased costs through reduced profitability, 35% have increased their prices, 24% have reduced staff levels and 23% have cut investment.

Commenting on the findings of the survey, the FSB’s national chairman, Mike Cherry, said: “Small employers have stretched to meet the challenge set by the NLW, with many paying their staff more by reducing operating margins.”

The survey data appeared to reinforce existing evidence that sectors where low pay is common and margins are more slight, such as retail and hospitality, have felt the hardest impact of the NLW.

Cherry emphasised that the targets set by the Low Pay Commission should be re-evaluated to reflect the task ahead for small businesses, “so that it can be met without job losses or harming job creation”.

The introduction of the NLW was announced by former chancellor George Osborne in 2015 and is currently set to increase by £1.85 per hour over the next for years, with a projected target of £9.05 per hour by 2020.

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