Why Labours manifesto spells disaster for UK small businesses
96% of the 5.5million businesses in the UK employee 9 people or less. (1)
The average profit of a UK business with 9 employees or less is £15,000. (2)
The introduction of the National Living Wage has affected the distribution of earnings with over 10% of employee jobs paid at, or within 20 pence of, the National Minimum Wage hourly rate in 2019. (3)
Yesterdays Labour Manifesto launch will impact on the UK’s small and micro businesses like never before. One key announcement…
Raise minimum wage from £8.21 to £10
…effectively an immediate (within 1 year) 18% pay rise for 2 million people, will have a knock on effect on all but a few of the businesses in the sector. I’ll explain…
Currently an employee on the National Minimum Wage (NMW) of £8.21 doing 37.5 hrs a week earns £16,009.00 a year - with Automatic Enrolment an employer will contribute 3% of this to their pension - meaning actual cost to an employer is £16,490.00
At the proposed rate of £10 - the employee earnings would be £19,500.00 a year - automatic enrolment would see the true employer cost rise to £20,085.00
Therefore - the true cost to 96% of the UKs businesses is an extra £3,595.00 per NMW employee on the books. With average company profits at £15k - any business with 4 employees or more will struggle to make a profit at all. (Although this means they won’t have any Corporation Tax to pay at Labours new rate either!!)
The real effect of such a sharp rise will mean employers have to raise prices of their products - and this will then impact on inflation and reduce the effect of wage rises anyway.
The current proposal for the NMW to rise to £10.50 over the next 5 years is sustainable and can be managed over a period. It would also mean that the United Kingdom has the highest minimum wage in the developed world.
It is irresponsible fiscal policy to impose such a huge burden on 95% of the UKs employers in such a short time.
Sources:
(1). https://www.merchantsavvy.co.uk/uk-sme-data-stats-charts/
(2) https://www.statista.com/statistics/291299/average-profit-of-smes-in-the-uk-by-enterprise-size/
