Minimum wage rises spark labour cost concerns

Business groups have voiced their concerns over rising labour costs as the National Minimum Wage (NMW) rates go up this month.

The latest increase came into effect on 1 October; it is the second of three planned minimum wage rises to take place in a 12-month period.

The Federation of Small Businesses (FSB) is calling on the Government to extend the employment allowance to help small businesses stretched by rising wage costs. Recent FSB research found that 42% of small business owners said labour costs were the largest rising cost.

Mike Cherry, FSB national chairman, said: "Small businesses … will need more help if increases to the minimum wage are to be a success and not affect employment levels or investment decisions. We call on ministers to consider a significant uprating of the Employment Allowance from its current £3,000 level. This … could be the lifeline many smaller firms need due to fast-rising labour costs."

Also this week, the British Chambers of Commerce (BCC) has published a survey of businesses that shows that 34% of firms have had to increase their wage bills since the introduction of the National Living Wage (NLW) in April this year for workers aged 25 and over.

The survey found that 25% of affected firms have reduced recruitment in response and 34% plan to do so if the NLW rises to £9 per hour by 2020. The BCC is now urging the Government to use caution with future NLW increases.

Marcus Mason, BCC head of education and skills, said: "The Government needs to take an evidence-based approach to setting the NLW. The rate should be set by the Low Pay Commission and be determined by the state of the economy, weighing up the various pressures businesses face. Further NLW increases need to be proportionate, reflecting business uncertainty, slowing growth and high input costs, to avoid having a negative effect on employment."

The new minimum wage rates from 1 October 2016 are:

  • £7.20 per hour for those aged 25 and over;
  • £6.95 per hour for 21-24 year-olds;
  • £5.55 per hour for 18-20 year-olds;
  • £4 per hour for 16-17 year-olds;
  • £3.40 for apprentices under 19 or those in the first year of an apprenticeship.

The next NMW rate rise will take place in April 2017.

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