Rise in the national living wage is disproportionately affecting small businesses claims FSB

Is your small business struggling to cope with financial pressures? Is your SME being squeezed by commodity price inflation, rising wages and the falling value of the pound? Well, it might be little comfort, but you are not alone. Many small businesses are facing similar pressures. These problems, however, have also been compounded by increases in the national living wage. Many SMEs who were already struggling, have found that the increases in the national living wage(NLW) have piled on further pressure and pushed them to the brink according to the latest survey carried out by the Federation of Small Businesses.

Small business forced to put up prices or accept lower profits says FSB survey

The FSB’s research found that many small businesses were being unduly affected by increases to the national living wage: two-thirds of survey respondents said the increases had led to lower profits, whilst almost a half said they had been forced to put up prices to pay for the increases. As a result of the survey’s findings, the Federation of Small Businesses is calling on the government to delay further increases whilst SMEs continue to struggle.

So how severe is the problem for small businesses? Well, according to FSB figures, nearly 40 per cent of businesses affected by the national living wage have been forced to increase prices following the increase in the NLW to £7.50 per hour. The figures also show that a further 25 per cent have had to scale back investment plans, whilst 20 per cent have been forced to reduce staff hours or hire fewer workers.

FSB research showed that 64 per cent of those companies reporting an impact from higher NLW levels had ‘stretched’ to meet this year’s increase by taking lower profits, which ultimately damaged investment. 39 per cent had had to raise their prices to cover the increase, thus adding to the already-inflationary environment.

There were suggestions when increases in the NLW were muted that small businesses might save costs by hiring and recruiting younger workers as theses would qualify for the lower rate of NLW. However, this has failed to materialise according to the FSB. In fact, fewer than 4 per cent of small businesses responded to the NLW increase by hiring workers under the age of 25

FSB calls for halt to NLW increases to help struggling small businesses

The FSB research shows that the sectors most affected by NLW increases are the care, retail and hospitality sectors. The principle reasons for this are that those sectors generally have a higher proportion of staff on the national living wage and they work to tighter margins.

Business operating costs have surged to their highest in four years, according to FSB’s latest Small Business Index, with the 43 per cent of businesses who have had to raise wages experiencing ‘significant pressures’.

In the light of its findings, the FSB is urging the Low Pay Commission to consider if the Government’s target of raising the NLW to £8.75 an hour by 2020 might not need to be delayed. Federation of Small Business Chairman, Mike Cherry, said:

‘Small employers have demonstrated their resilience in meeting the challenge set by the National Living Wage, with many cutting their margins, or even paying themselves less, to pay their staff more.’

‘In sectors where margins are tight, small firms are resorting to more drastic measures to cope with the NLW. It’s vital that the NLW is set at a level that the economy can afford, without job losses or harming job creation.’

‘Cost pressures on small businesses are building, and with most recent economic indicators underperforming, we are now facing the reality that the NLW target may need to be delayed beyond 2020.’

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