Most UK businesses hit by rising employment costs

Four out of five UK businesses have seen costs rise because of changes in employment legislation, the British Chambers of Commerce (BCC) reports.

The apprenticeship levy, pensions auto-enrolment and a new higher minimum wage have increased business costs.

The BCC’s annual workforce survey interviewed some 1,400 businesses.

The trade body wants the government to ensure no new upfront costs or taxes are imposed on businesses for the remainder of this Parliament.

The changes to employment legislation were designed to help improve wages and prospects for workers, but the BCC is concerned that high employment costs will have a negative impact on employees.

The Office for Budget Responsibility forecasts that the National Living Wage will increase to £8.75 per hour by 2020.

“Higher employment costs impact on the bottom line and reduce the resources available to invest in the business and its people,” said Jane Gratton, the BCC’s head of business environment and skills.

“Our survey shows that two-thirds of businesses will need to take action in response to proposed increases in the National Living Wage over the next three years. Firms are most likely to respond by raising prices or adjusting employee pay growth and wider benefits.

“There comes a point at which rising employment costs can no longer be absorbed through reduced profits.”

Key findings

The survey found that:

  • 75% of respondents report an increase in costs as a result of pensions auto-enrolment
  • 50% of businesses report an increase in costs due to the National Living Wage
  • 20% of businesses report an increase in costs as a result of the Apprenticeship Levy

To deal with minimum wage increases:

  • 38% of respondents plan to raise prices of products and services
  • 25% of businesses intend to reduce pay growth for staff
  • 21% of companies plan to reduce staff benefits
  • 20% of respondents are likely to scale back on recruitment

“Employment is just one element of the high upfront cost of doing business in the UK,” said Ms Gratton.

“It is the cumulative impact of all of these changes, and the pace at which they are being introduced, that causes the greatest concern and poses the biggest risk.

“There is little scope for firms to absorb any further costs without there being damaging effects on competitiveness, growth and opportunities for people in the workforce.

“The government must ensure that there are no upfront further costs or taxes on businesses and entrepreneurs for the remainder of this parliament.”

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