Government must balance supporting low wage employees and businesses
The Government’s increase to minimum wage could harm employers and lead to businesses closing due to an increase costs, say leading audit, tax and business advisory firm, Blick Rothenberg.
Heather Powell, a Partner at Blick Rothenberg, said: “The Government have announced that the National Living Wage will increase by 6.7% to £12.21 from 1 April 2025. Any increase is certainly welcome for those being paid it.”
She added: “However, the Government has ignored the recommendation from the Low Pay Commission of a rise of 5.8%. Which means that this wage rise is also a fund-raising exercise for the Treasury taken from the pockets of employers.”
Heather said: “The Government must remember that many on the National Living Wage are employed in the retail, leisure, hospitality, cleaning and maintenance sectors. These businesses all operate on very low margins and most will need to increase the pay of employees over the National Living Wage to maintain pay differentials.”
She added: “An individual on the National Living Wage, which increases to £12.21 in April 2025, who works 40 hours a week will get a pay rise from 1 April 2024 of £1,602 per year. The additional cost for employers in terms of increased income tax, employee’s national insurance and employers’ national insurance will be £670.”
Heather said: “The result of this will be an inflation of >6% additional costs passed onto customers of these sectors in April 2025 or loss of jobs as businesses close. Neither are attractive prospects.”
She added: “If the increase recommended by the Low Pay commission had been implemented, the pay rise would have been £1,372 (£228 less per annum) and the cost to employers would have been £574 per employee, a reduction of £96 compared to what has been implemented. Which would have kept the balance between helping those on low wages and supporting businesses with small margins.”
Heather said: “The Low Pay Commission estimated that there were 1.6m employees paid at or below the minimum wage in April 2023. This means that the increase in taxes paid in 2025/25 could exceed £1bn.”
She added: “The increase in the National Living Wage by 6.7% instead of 5.8% could increase tax receipts to £150m. A useful contribution to the Governments deficit, all at the cost of the employers.”
