Small firms are beginning to wilt under the pressure of regular rises in the national minimum wage, the Federation of Small Businesses (FSB) claims.
The minimum wage increased by 12% between 2004 and 2005, with a further 5.9% rise coming into force in October last year and another 3% just announced for October 2007.
The Low Pay Commission, which recommends the amount of any increase to the government, claims the effect of rises in the national minimum wage has been exaggerated after a review in January – which did not take into account the impact of last autumn’s increase – found there had been “no significant undesirable macroeconomic consequences”.
But Stephen Alambritis, a spokesman for the FSB, pointed to statistics from the government’s own Small Business Service which suggested fewer small firms are choosing to employ staff as evidence of the impact of increasing wages.
“It’s an issue for certain sectors and certain regions,” he said. “What our members are now saying is that it’s now beginning to pinch. It’s starting to feature as to whether they employ people.”
The commission believes the number of companies that have been adversely affected by the wage rises in 2004 and 2005 has remained stable rather than increasing.
But it admits it took into account concern in the small business community over interest rate rises, compulsory pensions and the extension of annual leave to a minimum of 28 days when deciding to increase wages by less than average earning for the first time in five years.
The minimum wage for people over 21 will increase by just 17p, to £5.52 an hour, while those aged 18-21 and 16-18 will receive hikes of just 15p and 10p respectively.
The Chartered Institute of Personnel and Development (CIPD), meanwhile, welcomed the cautious rise as a necessary move to prevent wage inflation and job losses.
“The common good requires a national minimum wage that ensures low paid workers share in growing prosperity without at the same time threatening the jobs that provide them with a livelihood,” said John Philpott, chief economist at the CIPD. “Growth in the national minimum wage has easily outstripped both price and average wage inflation throughout this decade.
“If it is to succeed as a long-term policy instrument it must be set at a rate that while improving pay at the bottom of the labour market does not have adverse consequences for jobs, inflation and the wider economy,” he added.
It is thought 1.7m adults work for the national minimum wage.