Pay rise warning

Small firms ‘need help’ to offset rise in living wage


 Pay will rise in April

Small firms say a rise in the National Living Wage must be “handled carefully” to avoid being self-defeating and causing job losses.

Federation of Small Businesses director of external affairs and advocacy Craig Beaumont welcomed the 6.2% (51p) increase in the living wage to £8.72 an hour in April 2020.

“It is absolutely right that everyone is paid fairly,” he said, but warned that hiking costs for small firms also had a down side and the government must follow through with promised help for companies.

“Small businesses are at the heart of communities – creating jobs and bolstering local economies – so it’s vital that increases in the National Living Wage are manageable for small firms and do not put jobs at risk.”

The Government says the new rates represent the biggest cash increase ever in the National Living Wage rate.

  • The National Living Wage for ages 25 and above – up 6.2% to £8.72
  • The National Minimum Wage for 21-24 year olds – up 6.5% to £8.20
  • For 18-20 year olds – up 4.9% to £6.45
  • For under 18s – up 4.6% to £4.55
  • For apprentices – up 6.4% to £4.15

The new rates have been recommended by the Low Pay Commission, and have now reached the target set by the Government in 2015 of the NLW equalling 60% of median earnings by 2020. The Chancellor has indicated that he will recommend a target of two thirds of median earnings for future wage rates by 2024.

Mr Beaumont said: “This government has promised a reduction in the jobs tax through an increase in the employment allowance. With a National Living Wage increase of this size now on the horizon, it’s critical that it delivers swiftly, particularly with small business confidence plumbing new depths ahead of the election.

“We need this support announced in good time ahead of April’s increase so small businesses can plan ahead.”

Four in ten small employers say they will raise prices in response to an NLW increase of this magnitude, according to the FSB. One in four say they will recruit fewer workers, one in five will cancel investment plans, and one in ten will consider redundancies.

“There’s always a danger of being self-defeating in this space: wage increases aren’t much good to workers if prices rise, jobs are lost and there’s no impact on productivity because employers are forced to cut back on investing in tech, training and equipment,” said Mr Beaumont.

“We’re already seeing signs of a cooling labour market. Within sectors where margins are particularly tight – not least retail, care and hospitality – thousands of jobs have been lost over the last year as overheads mount.

Taken together, these substantial labour market interventions could cause real disruption if not handled carefully.” 

– Chris Beaumont, FSB

“Looking ahead, the independence of the Low Pay Commission must be respected. We can only push on with substantial increases to minimum wage rates if economic conditions allow.

“It’s also important to flag that these increases are set to be accompanied by IR35 changes and another round of business rates increases in April. Taken together, these substantial labour market interventions could cause real disruption if not handled carefully.” 

The Association of Convenience Stores has warned ministers that the new rates will put further pressure on struggling high street businesses.

ACS chief executive James Lowman said: “Every week we hear more about the challenges facing high streets, particularly secondary centres away from major cities. The fact is that rising wage costs are the biggest single factor among many issues impacting all types of retailers, and there is a tension between the desire to raise wages for the lowest paid and the need for viable shops and vibrant high streets.

“Convenience stores offer a wide and growing range of products and services, often stepping in where other businesses have closed, but these require people to deliver them – 405,000 people work in our sector.

“This increase in minimum wage rates – which is four times the rate of inflation – will have an impact on investment, reduce staff hours for many employees working in the sector, and force retailers to work even more hours in the business themselves to make up the shortfall.”

Findings from ACS’ National Living Wage survey suggest that retailers are already taking action:

  • 72% of retailers have reduced the number of paid working hours in their business
  • 64% have seen a reduction in the profitability of their business; and
  • 52% of independent retailers have had to take on more hours in the business themselves

Scotland’s Fair Work Minister Jamie Hepburn said workers had been short-changed.

“While I welcome any increase to workers’ hourly rate of pay, the increases announced today, following a decade of UK Government austerity, do not go far enough,” he said.

Jamie Hepburn

Jamie Hepburn: ‘not a real living wage’ (pic: Terry Murden)

“The UK National Living Wage is still not a real Living Wage – even for those who will receive the full rate – and it cannot be right that workers aged 18 to 25 receive a lower rate of pay.  

“That is why the Scottish Government supports the payment of the real Living Wage of £9.30 per hour. Unlike the UK National Living Wage, this is a minimum rate which applies to all workers over the age of 18.

“While pay legislation remains reserved to the UK Government, we continue to encourage every organisation, regardless of size, sector or location to ensure all staff receive a fair day’s pay for a fair day’s work.”

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