Here, we look at the business community’s view on the impact Osborne’s National Living Wage will have on small companies.
From next April, workers aged over 25 will be entitled to a ‘national living wage’ of £7.20 an hour, rising to £9 an hour by 2020.
Meanwhile, Employment Allowance will increase by a further £1,000 to £3,000. Businesses will have their employer National Insurance bill cut by another £1,000 from April 2016, as the Employment Allowance rises from £2,000 to £3,000. This means, next year, businesses will be able to employ four people full time on the National Living Wage and pay no National Insurance at all.
The Employment Allowance will only allow employers (who are currently paying minimum wage) to offset the cost of the Living Wage increases up to 2,000 hours. After that, the business will be a net loser unless it is profitable enough to benefit from the reduction in the rate of corporation tax.
Here’s what a few of the business community think of the initiative.
Martin Campbell, managing director of fintech start-up Ormsby Street
‘The living wage will be a potentially difficult measure for small businesses, but a necessary one.
For the party of small business, the Chancellor seemed happier to intervene into family life in this budget. But the living wage increase is good news. I know that some small businesses will find it tough, and it’s certainly true that companies with a lot of low paid staff (industries such as food, retail, hospitality), will find it harder than small businesses in different sectors that do not. But as employers it will be a cost we need to afford, and an investment we need to make, though it’s not yet clear whether it will make up the gap in the government’s other cuts.’
Michelle Wright, CEO and founder of charity enabling organisation Cause4
‘As we see cuts in tax credits and benefits I think it’s good that all businesses will need to pay the National Living Wage. In Cause4 we have just moved to this system which has been a stretch because we employ a lot of graduates and apprentices, but has made a huge difference in how we approach staffing and how valued staff feel. It also helps us attract a broader field of candidates from all backgrounds. Employed staff should be able to live comfortably.’
James Poyser, co-founder of professional contractor accountants inniAccounts
‘Funding a £9/hour wage will preoccupy a lot of business owners as they assess how to absorb the extra expenditure. There’s no doubt that the vast majority will find it difficult to fund it in addition to the new cost of pensions. Many small business owners have to pay themselves far below the National Minimum Wage to survive and this will only serve as a barrier to small firms growing. I fear this move will reverse the revival of the independent high street.’
Lee Biggins, managing director of recruitment site CV-Library
‘The announcement of reduced corporation tax in the Budget is good news for the recruitment sector, offering more scope for job growth and expansion. That, combined with the introduction of increased Sunday trading hours is great news for businesses and employees alike and we expect to see a continued rise in jobs over the coming months.
However, the introduction of a National Living Wage is likely to oppose these positive changes. Despite it being a good introduction for those in low-paid jobs, it is likely to cause a contraction in job growth due to the increased funds that businesses will need to invest in higher wages.’
Andy George, founder of creative agency Hearts and Minds
‘We have taken on two juniors in the last year, and we looked to hire comparative to big agencies in our industry rather than looking at the National Living Wage. This has meant we have had higher staff costs, but we believe that this is an investment in getting the right talent in. It also seems a false economy to us to have our employees worrying about making ends meet over the sake of a few hundred pounds per month.’