National Living Wage hits small firms’ profits, finds FSB

Information from The Federation of Small Businesses (FSB) found that the National Living Wage (NLW) has impacted on small firms’ profits.

The SB’s 2016 Q2 Small Business Index, discovered that 47 per cent of small businesses now say wages are the main contributor to the rising cost of doing business.

Research revealed that the majority of small business were already paying all their staff above the new NLW (£7.20 an hour). 32 percent of businesses said the new wage has led to some increase in their wage costs. 19 percent found they saw a significant rise in their labour costs.

59 percent of businesses that claimed increasing labour costs following the NLW absorbed the increased cost through reduced profitability. 35 percent also reduced staff hours and 24 percent cut investment.

Mike Cherry, national chairman at the FSB, said: “Small employers have stretched to meet the challenge set by the National Living Wage, with many paying their staff more by reducing operating margins. This will get harder for many firms in later years, with the targets set in a ‘pre-Brexit-decision’ economy.

“Considering the uncertain economic climate, the Low Pay Commission must be given the opportunity to adapt the target in future years so that it can be met without job losses or harming job creation. The rate of the National Living Wage should be set at a level the economy can afford, based upon economic and not political priorities.”