Living Wage increase creates a challenge for firms, say business leaders

Prime Minister Boris Johnson announced the rise, which is four times the rate of inflation and applies to all workers over the age of 25. Tony McDonough reports

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The National Living Wage will be increasing 6.2% to £7.83 an hours in April 2020

 

Small business groups are offering a cautious response to the new that the National Living Wage will be increasing 6.2% to £8.72 an hours in April 2020.

Prime Minister Boris Johnson announced the rise, which is four times the rate of inflation and applies to all workers over the age of 25. He said: “For too long, people haven’t seen the pay rises they deserve.”

However, the British Chambers of Commerce (BCC), which represents chambers across the UK including Liverpool, and the Federation of Small Businesses (FSB), both warned the rise will impact on some business sectors more than others.

BCC co-executive director, Hannah Essex, said it was right that employers should pay their employees a proper wage but called on the Government to reduce business costs in other areas to make the policy more sustainable.

She added: ““Businesses want to pay their staff a good wage. They recognise and support the drive to improve living standards. But many have struggled with increased costs in a time of great economic uncertainty.

“Raising wage floors by more than double the rate of inflation will pile further pressure on cash flow and eat into training and investment budgets. For this policy to be sustainable, government must offset these costs by reducing others – and impose a moratorium on any further upfront costs for business.”

Mike Cherry, national chairman of the Federation of Small Businesses, also said that the majority of small firms were paying all their staff more than £7.83 an hour before this became the minimum rate in April.

But he added it would create issues for some business sectors. He explained: “Of those who did see wage bills increase following April’s rise, seven in 10 small business owners chose to reduce their profitability, absorbing those costs themselves. Roughly a third scaled-back or cancelled investment plans.

“The impact of a rising rate will vary from sector to sector. Labour-intensive industries with fine margins like childcare, hospitality and retail find increases harder to manage.”

The National Living Wage was unveiled by then-Chancellor George Osborne in 2015. According to the Low Pay Commission, firms have adapted positively to the policy in the past four years and have been willing to accept lower profits. However, it adds there is evidence prices have risen to cover the extra costs.

Chairman Bryan Sanderson said: “So far, the evidence suggests the National Living Wage has been successful in raising pay without causing unemployment, but employers have had to adjust in various ways.”

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