Living Wage UK Increase: what this means for small businesses

Living wage UK increase

Days before the national budget, the Government announced a living wage UK increase. The Low Pay Commission recommended these rises to meet the goal of having minimum wage earnings at two thirds of median earnings by 2024.

informed by recommendations form The Low Pay Commission, the Government will increase the living wage to £9.50, up by 6.6%. Wages for 21-22 year olds will increase by 9.8% to 9.18. Wages for 18-20 year olds and 16-17 year olds will increase by 4.1% respectively. The apprentice rate will receive the biggest increase, going up by 11.9% £4.81. 

However, small businesses took on high levels of debt during the pandemic and face increased living costs through the winter. Some are wondering whether small businesses need help if they mean to pay higher wages without causing redundancies.

Worried employers

The Mirror reported that one in four small businesses are calling for government support. Higher wages mean increased staffing bills. On top of the increased cost in energy, petrol, and national insurance, there will be an additional £1,000 cost per employee. This, coupled with inflation, Sandra worries, will mean that redundancies are inevitable to protect cash flow.

Worried employees

Members of the opposition point out that workers themselves face the same increases in the cost of living as small businesses. Bridget Phillipson, shadow chief secretary to the Treasury argues that much of the wage increase will be swallowed up by rising tax and energy bills.

Trade Union Congress general secretary says a £10 wage and a reversal in universal credit cut is needed. Increased wages won’t come into play until April, at the end of a high energy cost winter.

Increased living costs are impacting both small business owners and their employees, so where does the solution lie?

Need for lower turnover

Demands for higher wages form part of a larger trend in labour shortages. Think tank Autonomy revealed that 41% of employees in logistics, transport, hospitality, and social care are considering leaving their roles in the next year. When asked why, 55% cited low pay, 48% thought there were better opportunities elsewhere, and 42% said their job is bad for their mental health. The question remains whether the wage increase set for April will be high enough to combat the high turnover faced by these sectors.

Must higher wages hurt small businesses?

The Federation of Small Businesses (FSB) said that every worker whose pay increases to £9.59 will have to pay almost £500 in taxes. The smallest employers need support in the form of an extension of the small business employment allowance. This covers the first £4000 of employer national insurance contributions. FSB national Chair Mike Cherry said that without such intervention there would be more unemployment than the forecast of 50,000 given the higher wages and higher taxes.

The FSB claims that increasing employment allowance and reforming upfront costs such as business rates is the best way to help the UK’s small business community.

A way forward

It seems then that the opposition between higher wages and small business is not so black and white. In a post pandemic recovery marked by increased costs of living, both employers and employees could use help. Programs like Kickstarter allow businesses to take on young employees without the cost of any wages. Whilst schemes like this can help, it seems like more small business friendly reform will be needed to prevent April’s wage increase resulting in higher redundancies.

What’s your next step?

Are you a small business owner? Are you looking to downsize or make the most of recruitment schemes like Kickstarter? Beagle HR has already helped clients make the changes necessary for their business to thrive. Get in touch today!