Wage hike support now ‘critical’ for businesses as confidence plummets

Businesses need support to cope with the upcoming rise in the National Living Wage (NLW) – and warn jobs will be lost if the Government does not take action.

That is the view of the Federation of Small Businesses (FSB), which has this week warned April’s planned wages hike could see growth stifled and consumers hit in the pocket by price rises.

The body’s Director of External Affairs and Advocacy Craig Beaumont says the Government’s announcement of a 6.2% rise in the NLW to £8.72 an hour could have a major impact across multiple sectors, and ultimately prove ‘self-defeating’ if not properly managed.

Craig Beaumont, FSB Director of External Affairs and Advocacy.

Craig Beaumont, FSB Director of External Affairs and Advocacy.

He said: “It is absolutely right that everyone is paid fairly. 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.

“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 10 small employers say they will raise prices in response to an NLW increase of this magnitude. One in four say they will recruit fewer workers, one in five will cancel investment plans, and one in 10 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.

“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.

“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 FSB also highlights that confidence among the nation’s small business community stands at its lowest ebb since the 2011 recession – with the Q4 confidence measure of -21.6 marking an unprecedented sixth straight negative reading.

Close to half (46%) of small firms expect their performance to worsen over the coming three months, while fewer than a quarter (24%) expect their performance to improve.

Labour costs are already cited as a barrier to growth by one in four businesses, even ahead of April’s wage hike.

Beaumont believes the recent general election – and the new government’s firm commitment to securing Brexit later this month – could mean an end to uncertainty and help resort confidence.

He said: “The small business community has been stifled by uncertainty for more than three years. This quarter, the added uncertainty that accompanies a general election made it even harder for small firms to plan, hire and increase profits.

“They say that the night is darkest before the dawn, and small firms will be hoping that the old adage holds true. The incoming government has made some very positive commitments to the small business community – particularly where connectivity, employment costs, business rates and late payments are concerned – it now needs to deliver.”