Tory wage increase will damage SMEs, claims FSB » SMEInsider

Tory wage increase will damage SMEs, claims FSB

The Conservative Party has come under fire from small business leaders during its annual party conference, with the Federation of Small Businesses (FSB) claiming that David Cameron’s proposed changes to the National Minimum Wage (NMW) will slow hiring and increase prices in small firms.


The NMW increase will negatively impact small firms

This week has seen Tory politicians and supporters gather together at Manchester’s Central convention centre, where we have already seen chancellor George Osborne reduce tax credits for low-income families.

The conference has given the small business community an opportunity to hit out against the Conservatives. The FSB has released a study that reveals how damaging the increase in the NMW could be to SMEs.

During the Summer budget, Osborne announced that he would be raising the hourly minimum wage for workers aged 25 and over to £7.20 by April 2016. The NMW would then be raised to £9 per hour by 2020.

In September, David Cameron warned that businesses who fail to pay their employees the NMW could face fines of up to £20,000.

There are plans to help small businesses cope with the wage increase, including a 50 per cent increase in the new Employment Allowance, allowing small firms to claim up to £3,000.

Nearly 1,300 FSB members were questioned in relation to the introduction of the National Living Wage and changes to the NMW.

The FSB’s research found that 38 per cent of small employers (mainly in the retail, wholesale and accommodation sectors) believe that the wage increase will negatively impact their company. Just six per cent of businesses thought the policy would have a positive impact on their SME.

When the wage increase comes into force, the annual labour costs for a small retail business with six full time staff aged 25 or over earning the current adult NMW will increase from approximately £127,700 to £133,600.

This means that the average employer will have to find £6,000 to cover the additional costs even if they’re part of the government’s employment allowance.


How will this affect SMEs?

Over half (52 per cent) of the survey said they would put off hiring new staff while 50 per cent said they will raise their prices in order to keep up with the wage increase.

Other steps that small business owners will take to manage the NMW increase include:

  • Cutting staff hours (41 per cent)
  • Reducing staff numbers (31 per cent)
  • Cancelling or postponing planned investments (29 per cent)
  • Eroding pay differentials by freezing or cutting the wages of higher paid staff (26 per cent)
  • Absorb the cost through reduced profits (29 per cent)

John Allen, FSB national chairman, has warned the Conservative Party to rethink its changes to the National Minimum wage, explaining that some businesses which were strong enough to battle through the economic crisis won’t be able to continue if the increase goes ahead.

‘‘The UK economy has been performing well, but we should not allow this to make us complacent,’’ said Allen.

‘‘Businesses worked hard to weather the financial crisis, keeping on staff despite pressure to cut headcounts. Now times are better we know members are beginning to raise wages and take on new staff.’’

‘‘It’s important that the independent Low Pay Commission continues to play a central role in setting the minimum wage – and that includes deviating from the Government’s plan to raise the National Living Wage to over £9 an hour by 2020, if it becomes apparent that the economy cannot afford it.’’