Wage increase price hike

Higher wages spark price hikes

MORE than four in ten small companies in the UK have been forced to raise prices because of higher rates of basic pay, according to a new study.

The research from the FSB says business owners are cutting profits and productivity-enhancing investments in an attempt to absorb inflation-beating wage increases.

Some are even paying themselves less and cutting staff hours, according to the Lancashire-based organisation.

An increase to the National Living Wage (NLW) in April to £8.21 an hour saw seven in ten of the 1,000 businesses surveyed lower profits or absorb costs in an attempt to handle the hike.

The small business organisation is now warning against “arbitrary political targets” for wages and is urging caution from the Low Pay Commission (LPC).

April’s NLW increase coincided with the roll-out of fresh HMRC reporting requirements, higher employer pension contributions and increases to business rates.

Previous FSB research shows that the cost of government policy interventions to the average small firm is up £60,000 since 2011.

FSB national chairman Mike Cherry says that small business continue to be “ahead of the curve” when it comes to pay.

He said: “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.”

The FSB says higher minimum wage rates are “not a sliver bullet” with action needed on various fronts to end poverty and not simply burdening smaller businesses with more costs.

And it wants to see an independent ‘Low Pay Commission to determine future wage rate increases based on economic realities.

The organisation says that the government should also 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”.

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