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04 November 2019

Small firms call for ‘jobs tax’ support as wage reviews urge caution

Professor Arindrajit Dube has today stated that, while “there is room for exploring a higher National Living Wage (NLW) in the UK up to two-thirds of the median wage… it will also be important to empirically evaluate and recalibrate any such ambitious policy based on new evidence down the road.”

His comments accompany the launch of his review into the impacts of minimum wage rates, in which he also stresses that “any future NLW increases should be combined with adequate funding in sectors reliant on public funding”, such as the care sector.

Elsewhere, the Low Pay Commission has held fire on making specific recommendations for the trajectory of the NLW beyond 2020, highlighting that “a higher NLW target by itself will not end low pay under the most common measures, and will need to be accompanied by a broad slate of supporting policies”.    

Responding to the publications, Federation of Small Businesses (FSB) National Chairman Mike Cherry, said:

“The Dube Review is clear in its concern about a hard and fast timeframe for increasing the National Living Wage to two-thirds of median pay. It’s emphasis on the need for Low Pay Commission independence is the right one. As manifestos are compiled, this expert advice should be heeded. We need a cautious, analytical approach to wage policy, not a politically-motivated bidding war.  

“The Low Pay Commission is right to highlight that higher wage rates are not a silver bullet. Wider policy interventions – particularly around the cost of living and social security – are key.       

“While it’s absolutely right to tackle low pay, any increase in minimum wage rates needs to be accompanied by support for the smallest firms.

“That’s why we’re calling on all parties to be ambitious about their plans for the Employment Allowance as they compile manifestos. This vital discount on employers’ national insurance contributions – which essentially serve as a jobs tax – is critical for a healthy labour market.

“The Employment Allowance was introduced by the previous Chancellor to help cover the costs of employing up to four members of staff. Under current proposals for wage increases, that cover would fall to just two employees. Of the £4,000 pay increase that each person currently receiving the NLW would receive over the coming years under existing plans, £1,800 will go straight to the Treasury. Small employers need a share of that funding if they’re to keep taking on staff.       

“Employment intentions have tumbled among small businesses as confidence levels remain in the doldrums. With signs that the labour market is already cooling, we need all parties to spell-out exactly how they plan to keep small employers hiring.

“They should start with commitments to significantly uprate the Employment Allowance.”