Economic growth ‘could face barrier due to new living wage’

According to a recent study conducted by the Confederation of British Industry (CBI), the UK’s level of economic recovery could face barriers such as the higher costs employers will have to pay for the new national living wage.

Other factors, such as a skilled worker shortage, could also be problematic for national growth plans, particularly as two in five businesses across the country that replied to the survey said they intended to increase their workforce.

Out of the 342 companies that gave responses, the planned apprenticeship levy was also a cause for concern, in addition to the new minimum salary rate of £7.20 per hour.

Almost 50 per cent of service sector companies indicated that they would have to raise their prices due to the new legislation, though only a quarter said they would have to hire fewer members of staff.

The CBI’s director general, Carolyn Fairbairn, said: “The UK’s labour market has continued to outperform expectations, with businesses delivering jobs in every region of the UK.

“But there’s a danger of Government complacency, with companies facing multiple increasing costs, through the apprenticeship levy, the national living wage and unreformed business rates. These are acting as a cumulative drag that could hamper growth.

“Given the uncertainty surrounding the effects of the national living wage, it is critical that an independent, evidence-based Low Pay Commission plays the main role in assessing its true impact and recommending future rate rises accordingly.

“The Government must be careful not to sacrifice prosperity for political expediency by saddling businesses with costs that could harm investment, which is critical to increasing productivity.”

The Government, meanwhile, has quoted estimates from the Office for Budget Responsibility which state that the new living wage will represent just 1 per cent of corporate profits, and that corporation tax has been reduced to compensate for the change.