Fears Many Small Businesses Can’t Afford New National Living Wage

While the planned introduction of a National Living Wage for over-25s is a promising prospect for UK employees, the Federation of Small Businesses (FSB) has aired concerns about the negative impact this could have on Britain’s smallest firms. The new minimum wage of £7.20 comes into force in April 2016. This is expected to rise to around £9 per hour by 2020.


Research carried out by the FSB indicates that many small businesses will be left with no choice but to slow job creation, raise prices or postpone/cancel investments in order to compensate for the higher statutory rate. Only 6% of small businesses questioned believed the new National Living Wage would have a positive impact on their business, while 54% are worried about the negative implications.


John Allan, National Chairman of the FSB, said: “The UK economy has been performing well, but we should not allow this to make us complacent. Businesses worked hard to weather the financial crisis, keeping on staff despite pressure to cut headcounts. Now times are better we know members are beginning to raise wages and take on new staff.

“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.”

According to the FSB’s Cost of Employment Index, a comprehensive model of wage and non-wage costs for small businesses across different sectors, it’s estimated that a small retail business with six full-time members of staff aged 25 or over and earning the current adult minimum wage will cost an extra £5,900 per year from April 2016.Small businesses in the wholesale and retail sector along with those working in accommodation and food services are particularly worried about the negative impact the higher statutory wage could have.

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