A spoonful of sugar?

A spoonful of sugar?

In the recent Autumn Statement, Chancellor Jeremy Hunt announced an increase in the National Minimum Wage from £9.50 to £10.42 an hour from 1st April 2023 [next year]. An increase of 0.92p per hour [+ 10%]. Last year the rate increased from £8.91 to £9.50 [+0.59p.] 

According to the ONS government website, the average pay growth to August 2022 for the private sector was 6.2% and 2.2% for the public sector. 

Most people might expect to receive a pay increase of 4% [aggregate of 6.2% and 2.2%]. 

Such pay increases are not keeping pace with the inflationary pressures caused by BREXIT; COVID-19; & War] but pay increases are of themselves inflationary. If people have more, they spend more especially where spending is non-discretionary.  

What then is the justification for the largest-ever increase in the NMW at a time when everyone is finding things difficult, including small businesses that are said to be the backbone of the economy? 

There are two issues SME businesses face with this large and disproportionate increase in the National Minimum Wage:

  1. 1.  Affordability [Can the individual businesses afford to absorb this increase in costs or pass on the increase to their clients?]
  1. 2.  Differentials [More experienced and more highly skilled workers will expect similar levels of increase in pay in order to maintain differentials with their less experienced or less skilled colleagues].

An increase to £10 per hour would seem more reasonable and in line with wage inflation. 

Pay restraint in the National Minimum Wage might be difficult medicine to swallow and against the advice of the Low Pay Commission but without restraint, small businesses will have to review current their headcount at this time of falling demand and may decide either not to recruit additional people, or be forced to take difficult decisions around reducing staff and making redundancies.   

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