Businesses will crumble under strain of minimum wage hikes, warns CBI chief

John Cridland says businesses will struggle to cope with imposed increases in the minimum wage unless the Government does more to cushion the impact

The Chancellor's plans to introduce a national living wage will lead to more job losses than official estimates suggest unless the Government lightens the burden on business, the head of Britain’s biggest lobby group has warned

Plans to introduce a national living wage will lead to more job losses than official estimates suggest unless the Chancellor lightens the burden on business, the head of the Confederation of British Industry has warned.

John Cridland, director-general of Britain's biggest business lobby group, described George Osborne's proposal in the Summer Budget for a big rise in the minimum wage as the biggest challenge facing UK companies.

He said businesses, particularly in the retail, hospitality, social care and outsourcing sectors, would struggle to cope with higher wage costs unless the Government relaxed public sector contract rules and allowed the Low Pay Commission to deliver the final verdict on whether increases were sustainable.

"It's not obvious that businesses will be able to cope with that level of imposed wage cost increases without a reduction in working hours."
John Cridland

"Everybody wants to see higher wages at the bottom end of the labour market. And that's a laudible objective that business will get behind," he said.

"But Government pushing that rather fast is a gamble, and it's not obvious that businesses will be able to cope with that level of imposed wage cost increases without a reduction in working hours."

Mr Cridland said smaller high street firms, which are already dealing with the triple burden of high rents, falling prices and fewer shoppers would find it particularly hard to adjust.

Iain Duncan Smith, Work and Pensions Secretary, celebrates the announcement

The Chancellor revealed plans in July for a compulsory living wage for workers aged 25 and over. The minimum wage is £6.50 an hour, but will increase to £7.20 next April with an ambition for it to rise to £9 by 2020.

The Office for Budget Responsibility (OBR) estimates that six million workers will enjoy higher pay as a result of the proposal, including around 2.75m workers who will receive a direct pay rise.

However, the independent fiscal watchdog also predicts it will result in about 60,000 fewer people in work in 2020 and a reduction in total hours worked of almost four million per week.

"[The Government] should allow companies to renegotiate contracts mid-term because margins are too tight."
John Cridland

Mr Cridland warned that forcing businesses to pay higher wages could lead to a bigger reduction in headcount or hours than currently envisaged.

"I think it could be optimistic unless the Government listens to business about the ameliorating amendments it could make… It's an important thing that would enable businesses to do the right thing, otherwise frankly, their hands are tied."

"If the Government wants this policy to work it should allow companies to renegotiate contracts mid-term because their margins are too tight with local authorities and central goverment to cope with an imposed hike in wages."

Mr Cridland, a founder member of the Low Pay Commission, which helped to introduce the minimum wage in 1999, said the independent body "should be left to get on with its job.

"It should not have to take political instruction," he said.

The OBR's analysis showed those in the top deciles would see around half of the cash gains of the higher minimum wage

The CBI is expected to submit these recommendations in its response to the Low Pay Commission's consultation on the higher minimum wage, which closes in September.

Some of Britain's biggest businesses have spoken out against an imposed higher minimum wage. Simon Emeny, the chief executive of Fuller, Smith & Turner, said the policy could lead to pub closures, while the Association of Convenience Stores (ACS) has warned that 80,000 jobs in the convenience sector alone would be at risk.

Separately, the CBI said economic growth continued to pick up pace in the three months to August. Its poll of 754 businesses across the manufacturing, retail and service sectors showed the pace of growth accelerated for a second month running.

The CBI described growth as broad-based, with the business and professional services, and retail sectors making "particularly large contributions".