Small firms 'struggling to meet demands of National Living Wage'

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Small firms 'struggling to meet demands of National Living Wage' (image credit: iStock/Gordon Bell)

New research published by the Federation of Small Businesses (FSB) has highlighted a significant proportion of smaller firms across the UK that are presently struggling to meet the increased demand on their resources as a result of the introduction of the National Living Wage.

According to the body's latest quarterly business survey, the 2016 Q2 Small Business Index, almost half (47 per cent) of UK small businesses now cite wages as being their chief contributor to higher costs in the current financial climate.

Overall, the majority (59 per cent) of respondents stated they have been forced to reduce their profits as a result of a higher wage bill in the wake of this change in employment law.

However, a range of other solutions have been found by firms facing increased costs as a result of the new National Living Wage requirements, including increasing the prices of their products/services (35 per cent), reducing staff hours (24 per cent) and cutting planned investment (23 per cent).

There have been some positives for companies though, with 13 per cent of businesses stating they have recouped their increased costs through improvements in efficiency.

As a result of the impact of higher wage bills for many small firms, the FSB is now calling on the Low Wage Commission to reconsider its recommendations for a planned rise in the National Living Wage in the years ahead. The body argues that the planned increase of £1.85 during the next four years to a National Living wage of £9.05 per hour by 2020 may be an unsustainable increase for many small businesses.

Mike Cherry, national chairman for the FSB, stated: "Small employers have stretched to meet the challenge set by the National Living Wage, with many paying their staff more by reducing operating margins. This will get harder for many firms in later years, with the targets set in a 'pre-Brexit-decision' economy.

"Considering the uncertain economic climate, the Low Pay Commission must be given the opportunity to adapt the target in future years so that it can be met without job losses or harming job creation. The rate of the National Living Wage should be set at a level the economy can afford, based upon economic and not political priorities."

Increased levels of remuneration for the lowest-paid workers across the UK is an essential measure to improve quality of life for countless people in the years ahead. However, the FSB argues that if this comes at the cost of lower economic growth and many small firms being put out of business, the benefits to society in general may not be as profound as many may have hoped from this change.