Rising living wage set to drive up employer costs

Employers with low-paid staff are set to absorb increasing costs in the spring, following changes to the national living wage.

Firstly, the age at which the highest national living wage is paid will fall from 25 years old to 23 years old from 1 April 2021.

On top of that, the national living wage hourly rate for workers over the age of 23 is set to rise from £8.72 an hour to £8.91.

Most employers are still reeling from the financial effects of COVID-19, which prompted a spike in redundancies late last year.

They will also have to dig a little deeper to fund low-paid workers under the age of 23 due to the domino effects of the main increase.

Workers aged between 21 and 22 will receive a 2% pay rise to £8.36 an hour, while employers will have to pay apprentices at least £4.30 an hour.

Staff aged 18 to 20 should see their hourly rate increase from £6.45 to £6.56, and under-18s will be paid at least £4.62 an hour – up from £4.55.

The Low-Pay Commission (LPC) made the recommendations late last year and the Government said it had accepted them in full.

The LPC said it was a “formidable task” to raise minimum wage rates during times of economic crisis coupled with a global pandemic.

Former Business Secretary Alok Sharma called it a “measured rise”, however, and said it “strikes the right balance between supporting hard-working families through this tough time, while protecting firms as they recover from the impacts of COVID-19”.

Paying for the increase

A third national COVID-19 lockdown has affected, or closed, most businesses, with lockdown laws in England not set to end until 31 March – although restrictions are expected to be gradually eased before then.

According to the Federation of Small Business (FSB), 69% of small businesses are in debt and 40% of those claim the level of debt is unmanageable.

That could put a lot of small businesses in a difficult position when they have to increase their spending on employee wages.

“There are strong arguments concerning both low-paid workers – many performing critically important tasks – and the very real solvency risks to which small businesses are currently exposed,” said Bryan Sanderson, chair at the LPC.

As the LPC aims to balance those concerns, employees will see a smaller increase this year than they did in April 2020. Compared to last year’s increase of 6.2%, the national living wage is set to rise by 2.2%, although this is still more than three times the current inflation rate of 0.6%.

Calls for business support

With financial pressures increasing, several business groups have called for further Government support.

The FSB called current levels of support “insufficient”, arguing businesses should be given the same amount of compensation they were offered in the first lockdown.

The most recent round of business support grants, which were announced at the start of January, provide between £4,000 and £9,000 for businesses in the retail, hospitality and leisure sectors.

By comparison, the small business cash grants that were available between April and September 2020 offered businesses as much as £25,000 depending on their property’s rateable value.

The British Chambers of Commerce (BCC) also called for grants of a similar level to be made available, and recommended extending and expanding business rates relief and prolonging VAT deferrals.

Adam Marshall, director-general at the BCC, said:

“The damage inflicted by the pandemic is widespread. It goes far beyond the very visible casualties hit by repeated stop-start lockdowns.

“The support schemes the Government has introduced so far have saved many firms and jobs, but they have not gone far enough to help many survive a tough start to 2021.

"The drip-feed approach to business support measures has meant many firms simply cannot plan for the future.”

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