The introduction of the National Living Wage (NLW) in the UK has led to higher employment costs for companies nationwide. New research indicates that the policy has caused unemployment in the UK to rise, inspiring business leaders to call on the British government to put an end to the NLW.
National Living Wage
Your duties, as the director of a company, are varied. There are various day-to-day administrative tasks that it will fall on you to handle, ranging from managing staff to filing tax documents with HM Revenue and Customs. It is also your responsibility to stay abreast of incoming regulations, so your business can adhere to its legal obligations – otherwise you run the risk of incurring financial penalties.
There are various dates, which concern regulation changes that you should note in your diary this year, such as 1st April 2017, when the NLW will increase. On the same date last year, Whitehall introduced the NLW as a replacement for the National Minimum Wage, requiring UK firms to pay all staff aged over 25 £7.20 per hour. On 1st April, the NLW will be raised to £7.50 per hour for these workers, and this rate is expected to increase to £9.02 per hour across the next three years.
Raising costs
This could make the NLW an even more pressing issue for firms. According to Start-Ups, a report from UK-based free market think tank The Adam Smith Institute has asked Whitehall to scrap the NLW. Instead, it argued, the government should give the Low Pay Commission power over UK minimum wage policy, which it formerly held before 1st April 2016. The report explained that in order to safeguard their revenue, businesses would be forced to find ways to offset the cost of NLW increases.
This could inspire them to outsource or automate work, forcing firms to lay off workers, or increase consumer prices. It argued that the products which are most vulnerable to these rises are bought by society’s least wealthy, so any wage rises they see, would be offset by climbing living costs. A poll from business lobbying group the Federation of Small Businesses found that many small companies have been forced to reduce staff hours and increased prices, to handle the costs brought on by the NLW.
Proposed solutions
The Institute proposed three solutions. As well as handing total authority over the National Minimum Wage back to the Low Pay Commission, it also recommended that Whitehall raise tax credits for British businesses and roll out Negative Income Tax, to boost revenues without increasing unemployment or risking other unintended consequences. Commenting, the Institute’s Director, Sam Bowman, said:
“There is an important difference between the National Minimum Wage and the Living Wage, in that the former is set by a panel of experts with a mandate to minimise the risk of job losses, but the Living Wage is set by politicians whose main interest is looking good on the Ten O’clock News. That’s a recipe for disaster, and we believe that direct cash transfers like tax credits or a Negative Income Tax would be much less risky ways of helping people at the bottom than the National Living Wage.”
Managing cash-flow
It is hard to deny that the NLW has caused unemployment to spike, by imposing extra financial burdens on small businesses. But unless Whitehall follows The Adam Smith Institute’s advice, the NLW is a reality your firm will have to live with. It is essential, therefore, that you create a robust financial infrastructure for your venture, to manage cash flow and fund operations, without resorting to layoffs. As registered bank intermediaries, Turner Little’s team can supply you with advice on UK banking issues, ensuring that your firm can safeguard it’s financial future and keep staff on its payroll.
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