UK Edition
'Unaffordable' minimum wage plan needs Brexit rethink, says BCC
The Government must overhaul its minimum wage policy following the Brexit vote or risk damaging the economy, one of Britain’s biggest business groups has warned.
The British Chambers of Commerce (BCC) is urging the Government to abandon its “politically driven” approach to setting the national living wage, which could become “unaffordable” as the decision to leave the European Union ushers in a period of uncertainty.
In its submission to the Low Pay Commission’s consultation on future increases, the lobby group says failure to recalibrate the policy could push up prices, raise unemployment and even force companies out of business
Championed by the former chancellor, George Osborne, the minimum wage for people over 25 rose by 7.4pc to £7.20 this April.
The BCC says the decision to leave the EU means returning to an “evidence-based” approach to setting the wage floor is paramount.
“If forecasts about growth and productivity, following the EU referendum and global slowdown, become more negative, then a high minimum wage rate could cause higher unemployment, increased prices, and may even result in bankruptcies,” the submission says.
“Determining the national minimum wage and national living wage during this period of heightened uncertainty requires special care.”
The BCC urges the Government to review a goal to lift the national living wage to around £9 by 2020. It suggests that increasing the minimum wage to 60pc of median earnings by the end of the decade is now “unaffordable”.
“The national living wage policy was set before the EU referendum result, and therefore it is valid that the Government should reassess this policy following the referendum, taking into account new economic data and forecasts once these becomes available,” it says.
Based on “conservative” estimates of its pre-referendum earnings forecasts, the BCC believes the minimum wage should rise by 2.4pc to £7.39 next April.
“With uncertainty in the UK and global markets, any final decision will need to take into account any future impact of the recent referendum result,” it says.
It warns that pressing ahead blindly with increases towards the £9 target would hit smaller businesses hardest.
These enterprises account for 99.3pc of all private sector businesses and employ more than 15m people, according to the Federation of Small Businesses.
Mr Osborne claimed that raising the minimum wage would help to transform the UK into a “higher wage, lower tax, lower welfare” economy.
However, the BCC says the policies introduced by the Government to cushion the burden of higher costs, including cuts to corporation tax and extending employment allowances do not fully offset the burden.
The BCC is in the process of polling its members about the impact of the increased minimum wage.
Preliminary responses suggest most businesses have “largely chosen to absorb the increase in costs by reducing profits or increasing prices”.
While early evidence also suggests that businesses intend to invest in technology and training to improve productivity, the BCC cautions that “in some sectors firms recognise that productivity gains are finite”.