Over half of small firms cannot keep up with NLW increases, says FSB

A large majority (64 per cent) of small firms are struggling to meet the latest rise in the National Living Wage (NLW), new research has revealed.

The Federation of Small Businesses (FSB), which published the study, said businesses are having to stretch to meet the demands of rising pay by taking lower profits.

According to the study, around two in five (39 per cent) small businesses affected by the NLW have put up prices to cope with the latest increase to £7.50 per hour.

Likewise, a quarter (24 per cent) have cancelled or scaled down investment plans, and a fifth have reduced staff hours or hired fewer workers.

The FSB also suggested that the faster rising NLW is not increasing demand for younger workers. In fact, less than four per cent of small businesses responded to the NLW by hiring more workers under the age of 25.

Meanwhile, business operating costs have surged to their highest levels in four years, with the retail, care, and hospitality and accommodation sectors most affected.

Mike Cherry, FSB National Chairman, said: “Small employers have demonstrated their resilience in meeting the challenge set by the National Living Wage, with many cutting their margins, or even paying themselves less, to pay their staff more. In sectors where margins are tight, small firms are resorting to more drastic measures to cope with the NLW.

“It’s vital that the NLW is set at a level that the economy can afford, without job losses or harming job creation. Cost pressures on small businesses are building, and with most recent economic indicators underperforming, we are now facing the reality that the NLW target may need to be delayed beyond 2020.”

The FSB called for the Government to consider the 2020 NLW target, and consult on whether it may need to be delayed if the economy cannot keep up with the increases.