National Living Wage 'to impact small businesses'

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The introduction of the National Living Wage will impact many small businesses

A significant proportion of UK small businesses believe the introduction of the new National Living Wage will have a far-reaching impact on their ability to deliver growth.

Research published by the Federation of Small Businesses (FSB) has revealed more than one-third (38 per cent) of UK small business leaders believe the introduction of the National Living Wage will have a negative impact on their company.

Coming into force from April next year, the lowest level of remuneration for adults aged 25 and over will rise to £7.20 per hour, with plans to increase annually to a level of £9 per hour by 2020.

At this level, 54 per cent of respondents to the FSB study stated they would find it difficult to operate in a cost-effective manner. Overall, just six per cent of business leaders stated their belief that the increase in remuneration will have a positive effect on businesses in the years ahead.

In response to the rising costs associated with staff pay, many firms may struggle to perform in the same strong manner that they have until now, especially as companies will be expected to take on these additional costs just six months after the latest rise in the National Minimum Wage that came into effect on October 1st.

FSB national chairman John Allan commented: "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.

He added that, as a result, some businesses may be forced to take steps to minimise the impact of higher wages, with 41 per cent of firms stating they would consider reducing individual staff hours.

Other measures that companies stated they would consider included reducing staff numbers (31 per cent), cancelling or postponing planned investments (29 per cent), freezing or cutting remuneration packages for higher paid workers to offset differences (26 per cent).

However, almost one-third (29 per cent) said they would simply have to absorb these costs through reduced profits.

Mr Allan concluded: "With the economy recovering it is right that employees should be rewarded with a pay rise - but we cannot allow wages to become a political football.

"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."