Business leaders have complained about the cost of Sajid Javid’s pledge to lift the national living wage by more than £2 an hour and expand it to cover more of the workforce.
The Federation of Small Businesses said that higher staff costs could mark a breaking point for some companies, while the British Chambers of Commerce warned of a risk to productivity and competitiveness.
Speaking at the Conservative Party’s annual conference in Manchester, the chancellor said that the government would set a target of increasing the national living wage to match two thirds of the working population’s median earnings over the next five years. That would lift basic pay to about £10.50 from the present level of £8.21.
Mr Javid said that the national living wage would be applicable to all employees over the age of 21, down from 25 now. The changes would benefit four million people.
Mike Cherry, the FSB’s national chairman, warned that the increase would hit businesses in retail, the care sector and hospitality. “This increase will leave many small employers struggling and, without help, could make some small firms unviable,” he said.
Shares in retailers fell after Mr Javid’s comments. Those of Tesco, J Sainsbury and Wm Morrison, three of the biggest employers, closed more than 1 per cent down.
The BCC said that business was already labouring under a mountain of cost pressures. Adam Marshall, its director-general, said: “Companies already face significant cumulative employment costs, including pensions auto-enrolment, immigration skills charge and the apprenticeship levy, so government must take action to alleviate the heavy cost-burden facing firms, or risk denting productivity and competitiveness.”
The CBI said that the only way to make pay rises sustainable was by increasing productivity, which has been falling this year. Dame Carolyn Fairbairn, its director-general, said that ministers would be better advised to let the independent Low Pay Commission determine the “pace and affordability of any future wage rises”.
