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15 May 2018

Proportion of small firms increasing pay is largest since 2014

The share of small businesses that are increasing wages for their employees has hit a three-and-a-half year high, according to the latest research from the Federation of Small Businesses (FSB).

The findings follow this morning’s announcement that the UK unemployment rate fell to 4.2% in Q1 2018. Average weekly earnings for employees increased by 2.9% compared with a year earlier.

Two thirds of small firms (66%) have increased salaries over the past year, the highest proportion since Q4 2014. Also at a three-and-a-half year high is the share of small business owners awarding pay increases of two per cent or more (50%). A quarter (25%) have increased pay by four per cent or more.  

Eight in ten (79%) small firms say they have maintained or increased headcounts over the past three months. The figure is up three percentage points compared to Q2 2016.  

Government statistics published today also show that the number of self-employed workers fell by 38,000 to 4.75 million in Q1 2018 and there are now 870,000 people using Universal Credit.

Only a quarter (25%) of sole traders report that revenues are up over the past three months, according to the new FSB research. The figure is down five percentage points compared to the same period last year.

FSB National Chairman Mike Cherry said: “Small firms are playing a critical role in keeping our jobs market buoyant. It’s great to see that such a big proportion are in a position to take on more staff and up pay levels.  

“Unemployment remains a real problem for groups furthest from the world of work, such as ex-offenders, young people and those with disabilities. The Government should confirm plans for a National Insurance holiday for small employers that take on employees from disadvantaged groups, so that every one of us can share the benefits of UK economic growth.

“With only one in four sole traders saying that revenues are increasing, the Government should reverse the damaging impact that Universal Credit is having on our self-employed community. The system gives sole traders just 12 months to make their firms a success, when all the evidence shows that it takes two to three years to get a viable firm off the ground.

“Universal Credit nudges users towards taking a job rather than creating one. By calculating benefits on a monthly rather than a yearly basis, the system rewards those who have consistent incomes. Meanwhile the self-employed, whose earnings vary from week to week, are left to suffer.”