The new Government announced recently that the National Living Wage (NLW) will increase by 6.2 per cent to £8.72 an hour in April.

Naturally, it is absolutely right that everyone is paid fairly. However, it is also important that the National Living Wage is affordable and manageable – especially for small businesses, which make up more than 99 per cent of UK enterprises and which employ more than 60 per cent of private sector workers.

So we do need to be careful that headline-grabbing and apparently welcome measures do not lead to unintended consequences, such as small firms having to lay-off staff due to unaffordable wage bills. Research by the Federation of Small Businesses has already shown than four in ten small employers say they will raise prices in response to an NLW increase of this magnitude. One in four say they will recruit fewer workers, one in five will cancel investment plans and one in 10 will consider redundancies.

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These are clear warning signs that wage increases alone are not necessarily a good thing. After all, an increased National Living Wage is not much use to workers who lose their jobs altogether. It’s also important to note that these increases are set to be accompanied by additional financial burdens in coming months – including yet another round of business rates increases in April. Taken together, these could cause real disruption to business and employment prospects.

To be affordable and sustainable for employers, these increased costs need to be matched by improved efficiency, productivity and profitability. Plus, we need extra Government action to boost business confidence and support job creation and retention.

That’s why we have welcomed the Government’s promised increase in the employment allowance. This would at least help to offset the financial burden on businesses that employ staff, thereby helping to support existing and new jobs in the economy.

Mike Goodall

FSB Development Manager in Worcestershire