The profits of almost two-thirds of small businesses affected by the National Living Wage (NLW) have been impacted by its latest rise.
A survey by the Federation of Small Businesses (FSB) shows that the NLW, introduced in April '16 and updated a year later, has forced 40 per cent of SMBs to raise their prices, in an effort to pay all employees over 25 at least £7.50 per hour.
The NLW only applies to workers over the age of 25 - but its introduction has not raised the hire rate of younger employees. Fewer than four per cent of the 835 SMBs surveyed took on more staff under 25 as a response.
Current plans call for the NLW to rise to £8.75 an hour by 2020. However, the FSB says that that target may need to be revised, due to the UK's poor economic performance: real incomes, productivity and GDP growth have all fallen recently, while business operating costs have reached their highest level in four years. The Federation supports a rise of just 35 pence, to £7.85 per hour, in 2018.
Mike Cherry, FSB national chairman, said, "Small businesses owners 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. Therefore it is vital that the NLW is set at a level that the economy can afford, without job losses or harming job creation."
The Low Pay Commission will make its recommendations on the NLW to the government this autumn, followed by an announcement by the Chancellor, Philip Hammond, in this year's Autumn Budget.
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