Is the National Living Wage killing small businesses?

Research from the FSB suggests the introduction of the minimum £7.20-an-hour rate has led many small firms to increase prices and reduce staff hours

A number of the UK’s small businesses have struggled to adjust to the new National Living Wage (NLW) since its introduction in April, the Federation of Small Businesses (FSB) has argued in research published today.

For some 49% of small businesses, the new NLW rate – which requires UK employers to pay a minimum £7.20 an hour for staff aged 22 and over – is now seen as the main contributor to the rising cost of doing business.

While 59% of small firms have absorbed increased labour costs by taking lower profits, many small firms have taken more drastic action in order to say afloat – 35% have increased their prices, 24% have reduced staff hours, 23% have cut investment, and 16% have actually recruited fewer workers.

Small businesses most negatively impacted by the wage increase are reported as being those in retail, wholesale, hospitality, and accomodation; all sectors where tight margins and low wages are most common.

FSB national chairman, Mike Cherry, has said that it will get harder for many firms to “meet the challenge set by the National Living Wage” given that the original targets were “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.”

For advice on what the National Living Wage means for your business, click here.

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