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Squeezed small firms need promised support to manage National Living Wage hike, say employers

Responding to the announcement that the National Living Wage will increase by 6.2% to £8.72 an hour in April 2020, FSB Director of External Affairs and Advocacy Craig Beaumont 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 the April’s increase so small businesses can plan ahead.


“Four in ten 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 ten 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.”