Employers have warned they will be forced to raise prices, freeze hiring or cut hours if the government pushes ahead with plans for a £9 an hour national living wage (NLW) by 2020.
A new survey from the British Chambers of Commerce (BCC) found one-third of business had been affected by the new £7.20 minimum wage for over-25s, which came into effect in April.
Of those, only one-third had been forced to raise prices to cover the costs, though 63 per cent say they will need to pass the costs of upcoming wage hikes onto consumers over the next four years.
The government’s commitment to the NLW has come under sharp focus on the wake of the EU referendum result, with employment, wage growth and businesses’ bottom lines set for a squeeze. George Osborne committed the government to reach a NLW level equivalent to 60 per cent of median earnings by the end of the decade, signalling this would equal £9 an hour.
The twin targets have caused confusion among businesses who are yet to find out what Philip Hammond, Osborne’s successor in Number 11, thinks of the scheme. Think tanks such as the Centre for Economics and Business Research and the Social Market Foundation have also raised concerns about the wage.
One in three businesses say they will need to take at least some extra measures such as cutting recruitment, reducing staff benefits or raising prices if they are asked to meet the £9 target by 2020.
Marcus Mason, head of education and skills at the BCC, said: “A significant number of firms have already had to rebalance their books to meet the cost of the NLW, which can have a knock-on effect on recruitment or growth plans. Many firms would have to change their business model.”
The warnings come just one day ahead of the annual increase in the minimum wage rates, which apply to those under the age of 25.
The headline hourly rate, which affects those between 21 and 24 years old will rise from £6.70 to £6.95. The minimum wage and the NLW are both set for an increase again next April, with the Low Pay Commission, the independent body responsible for recommending wage rates which don’t cause job losses, set to report later this year.