National living wage will hit jobs and raise prices, small firms warn

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A “significant” number of small firms are worried about the impact of next year’s new national living wage, warning it will hit jobs, raise prices and damage investment, according to a new study.

A survey of more than 1,200 smaller firms found that almost two out of five believe the £7.20 an hour rate will have a negative impact on their business.

The rate, for over-25s, comes into force next April, although it will be below the current voluntary living wage figure.

The Federation of Small Businesses (FSB) said its research showed that only one in 20 firms thought the Government’s decision to introduce a new rate next year, rising to £9 an hour by 2020, would have a positive impact on their business.

There are thought to be around 300,000 small businesses in Yorkshire.

Wholesale and retail firms, as well as those in accommodation and food services, are most likely to be affected, said the report.

The FSB warned that although small business confidence and hiring intentions have been strong in recent years, there has been a “marked cooling” in confidence since the summer Budget.

FSB chairman John Allan said: “Over half of our members already pay their staff the voluntary living wage, but those that don’t are often operating in highly competitive sectors with very tight margins.

“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 job losses.”

Around 1,800 firms are now paying the living wage of £7.85 an hour, and £9.15 in London.

Recent analysis from the Resolution Foundation think tank found that around one in five employees in small businesses are set to get a pay rise as a result of the new national living wage, with total wage bills rising by 0.3 per cent. By 2020, almost three in 10 workers are expected to get a pay rise, with total wage bills rising by 0.8 per cent, it estimated.

A Government spokesman said: “The new national living wage is an essential part of moving to a higher wage, lower tax, lower welfare society where work always pays and the majority of households are better off.

“It is expected to directly boost the wages of nearly three million people and will mean a full-time worker earns £2,000 more per year by 2020.

“The Government also recognises that the national living wage needs to be affordable for businesses - that’s why we’ve set it at a level recommended by leading experts.”

Not all agree with the Government however. Andrew Chamberlain, chief economist at careers website Glassdoor, has warned that minimum wages can have harmful effects and is likely to usher in price rises and fewer low-skilled jobs in the UK.

The penalties facing employers can be severe. A new team of compliance officers in HMRC will investigate the most serious cases of employers not paying the National Minimum Wage and National Living Wage when it is introduced in April 2016.

The team will have the power to use all available sanctions, including penalties, prosecutions and naming and shaming the most exploitative employers.

Employers who fail to pay staff the minimum wage they are legally entitled to will have to pay double what they do now.

This reform is intended to increase compliance and make sure those who break the law face tough consequences.