How will the national living wage affect small business?

By Louise Mulgrew | 9th July 2015 | 14 min read

Following the announcement from the Chancellor yesterday, the new "National Living Wage" that will come into effect in April 2015 has some businesses worried.

The rise from the current £6.50 per hour minimum wage to £7.20 National Living Wage by April 2015, and an increase to a minimum of £9.00 per hour by 2020 has businesses wondering where they are going to get this extra cash from.

The further cuts to welfare mean that the pressure to seek work and earn money will increase among unemployed. However, due to the increased amount of money that businesses will have to pay those over 25, they are more likely to be selective over the jobs that they create.

For an example, if a business hires 5 employees all on national minimum wage, working 30 hours per week, that would cost them around £50,000 per year. With this increase rising to £7.20 by April, this will cost them an increased £6,000 per year. If this then goes up to £9.00 per hour, this will cost the business an extra £20,000 per year.

This is the equivalent of hiring two extra employees at the current minimum wage rate. This means that while businesses are paying the equivalent of two new employees extra, they are going to be less likely to actually take on new employees.

The thought then is that businesses may turn to hiring people under the age of 25 (the age that the National Living Wage affects from). This could then lead to a refreshed bias on age where businesses would be more likely to hire a 21-24 year old over a 25 year old because it will cost the business much less. However, could this be good news for new graduates?

Graduates and tuition fees were another topic that arose in the budget. The Chancellor announced that as of the 2016/2017 academic year, means-tested maintenance grants will be scrapped and replaced with loans. This means that those potential students at lower earning households may be put off attending university due to the increased tuition fees and debt that they could find themselves in come graduation.

The Chancellor explained that these new loans wouldn't need to be repaid until the graduate was then earning £21,000 per year. Mr Osbourne also explained that tuition fees may rise in the future in line with inflation.

So the worry is that businesses may be facing a future of diminishing talent due to increased university fees and a more expensive workforce to employ which could lead to slower growth and less opportunities for unemployed people.

Have your say:

What do you think of the government's recent budget? Do you think that the decrease in corporation tax rates is enough or do you feel that the government could have done more for small businesses?

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