108. Big Increase in The National Living Wage – what might this mean for you?

Just before Christmas we learnt that the recently re-elected Conservative government will in April 2020 be raising the National Living Wage (NLW) by 6.2% to £8.72 per hour. To put this in perspective, this is 4 times the current rate of inflation.

The driver of this is cited as pay stagnation – and many of us can relate to our salaries and wages staying pretty flat in the last few years. And digging deeper, it is not hard to see the more obvious and vote winning objective of reducing the effects of poverty and to encourage more of those not currently working to get a job.

Putting aside the political drivers, will this impact your business? And, if so, how?

What happened previously?

When the National Living Wage was introduced in 2016 there was one hell of an outcry from business owners and their “representative” bodies.

Sure, being forced to increase one of the biggest costs in most business’ cost base is going to (you could even say must) lead to increased selling prices; which in turn makes the very items your increased pay packet was to buy more of harder to afford. Thus initiating a vicious circle:

Raising wages – higher prices – increased inflation – your money goes less far

Commentators at the time even opined that the Government’s then determination to increase living standards for much of the UK workforce would adversely affect precisely those that it was designed to help.

But now 3 years on, very little of that expected fallout actually came to pass.

So what now?

There are probably going to be more increases in the NLW over the next few years. The Living Wage Foundation estimates that a “fair” living wage is £9.30 per hour. Indeed, they say that over 6,000 businesses are already paying at, or in excess, of this “non-binding” wage.

Whilst we will undoubtedly hear more calls to offset these increased costs elsewhere – and one area that is crying out for reform is business rates. But it would be folly to pin you hopes on this in the short term.

So, as a business owner, you would do well to understand what all this means. At Tectona, we believe that every business should stress test regularly. Costs are going up in all areas – the NLW and the likely increases in interest rates in the not too distant future should be clearly on your radar.

If you want to be able to run the business you want to run, so that you can live the life you want to live you could do no better than to run your business through the Tectona Quad² Review.

Here at Tectona, we work with lots of small businesses and are regularly called upon to explain what the numbers actually mean, what you can to do mitigate and where you might turn to raise cash, if necessary.

Contact the Tectona team so that we can talk you through your options.

About Tectona

Tectona Partnership helps business owners sleep at night by embedding one of our 15 commercial finance directors in your management team. Very often, a part time solution is usually the most effective for small businesses. We make sure you have the necessary management information and strategic insight to make informed decisions and will tell you what you need to know, when you need to know it.

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