Federation of Small Businesses makes living wage warning
By James Young | 13th August 2019
Business owners are paying themselves less, increasing prices and holding back investment in response to the rising costs of paying staff, a study has shown.
After commissioning the research, the Federation of Small Businesses has warned the government against setting 'arbitrary political targets' for wages.
They have also called for caution from the Low Pay Commission when it comes to setting the minimum and living wage and also for a higher wage to be paid to apprentices.
Ahead of the National Office for Statistics publishing its August labour market update, the FSB research has revealed the steps being taken to beat wage rises by small business owners.
The survey of more than 1,000 business owners showed that 51 per cent of small firms were paying all staff at least the living wage amount of £8.21 prior to the rate becoming law in April.
Owners of SMEs were the ones to be directly affected by the rising living wage, with 71 per cent of businesses lowering profits or absorbing costs in an attempt to handle the hike.
The survey also said that 45 per cent of firms were increasing prices, 29 per cent were delaying investment and 23 per cent were reducing hours worked by staff as a result of the increase.
The rise in the living wage coincided with the roll-out of fresh HMRC reporting requirements, higher employer pension contributions and increases to business rates.
Further FSB research has shown that the cost of government policy interventions to the average small firm has risen £60,000 since 2011.
In March, the government launched a widespread international review of minimum wage rates.
Two months later, the Labour Party unveiled plans for a £10 minimum wage for all workers over the age of 16.
The FSB has included its findings in its consultation on the minimum wage rate being sent to the Low Pay Commision.
It said: " "It is crucial for the LPC to maintain a firm level of independence - the living wage shouldn't be dictated by arbitrary political targets."
Elsewhere, FSB calls on the LPC to take "a cautious approach in working towards an aspirational goal", to "implement any future ambitious pay goal over a ten-year period."
It also highlights that "significant changes to minimum wage levels alone will not achieve the goal of reducing poverty in the UK.
"Universal Credit, affordable housing, education, childcare and accessible transport all have a vital role to play."
FSB National Chairman Mike Cherry said: "Small businesses continue to be ahead of the curve on pay.
"More than half were paying all staff the current National Living Wage before they were obliged to do so - an even greater proportion were doing so in the smallest firms.
"We're now seeing more small business owners than ever saying that living wage increases are impacting the bottom line.
"Their first instinct is usually to take the hit personally, paying themselves less rather than cutting staff.
"While politicians are locked in a battle of who can make the boldest promises on pay,
"they fail to acknowledge that - within many smaller businesses - bigger pay packets often mean less investment, fewer training opportunities and higher prices.
"With pay now outstripping inflation, it's harder and harder for small business owners to put funds aside for the investment needed to close the UK's productivity gap.
"Policymakers off all stripes need to recognise that higher minimum wage rates are not a silver bullet.
"Ending poverty means taking action on various fronts, not simply burdening smaller businesses with more costs."
He added: "Future increases to wage rates should be determined by an independent Low Pay Commission basing recommendations on economic realities, not inflexible targets.
"Against a backdrop of persistent political uncertainty, greater support is needed to help small firms absorb spiralling employment costs.
"As part of an Emergency Brexit Budget, this Government should uprate the £3,000 Employment Allowance and deliver its manifesto commitment to a national insurance holiday for small businesses that take-on those furthest from the labour market."
The research also revealed that small businesses are often ahead of the curve when it comes to offering the living wage to younger workers.
More than half of SMEs (60 per cent) currently pay 20-24-year-olds at least £8.21 per hour, a marked increase on the £7.70 wage rate for that age group.
Previous FSB research shows that more than half (58 per cent) of SMEs employ at least one worker between the ages of 16 and 24.
The FSB has recommends the LPC "gradually bringing the apprenticeship rate more closely in line with the under-18 rate."
It also says "extra care must be taken to ensure the level does not affect the take-up of apprenticeships," given that apprentice numbers have tumbled in recent years.
Mike Cherry added: "There's a conversation to be had about increasing pay for younger workers, especially those just below the National Living Wage threshold, and those entering the workplace straight from school.
"That said, the greater experience and expertise usually held by older employees must continue to be recognised.
"Any changes should be gradual and carefully monitored, especially in such an uncertain climate."
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