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Businesses could ‘struggle to afford’ increase in living wage, experts warn

Last week, the government announced that the National Living Wage will rise by almost 10 per cent next year, from £10.42 to £11.44 an hour.
Last week, the government announced that the National Living Wage will rise by almost 10 per cent next year, from £10.42 to £11.44 an hour.

The substantial increase in the National Living Wage announced by the government last week risks causing a resurgence in inflation, business groups and analysts warned.

Last week, the government announced that the National Living Wage will rise by almost 10 per cent next year, from £10.42 to £11.44 an hour.

The Resolution Foundation said this was the third biggest rise on record, benefiting at least 1.7m workers. However, experts were concerned that the increase could spark another round of price rises.

“While the new rates will be welcomed by workers grappling with the cost-of-living crisis, many employers could struggle to afford this,” Ben Willmott, head of public policy for the Chartered Institute of Personnel and Development said.

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Businesses are likely to have to increase prices or lay off workers in order to deal with the higher costs.

Charles Hall, head of research at Peel Hunt, said the increase in the National Living Wage will be “materially inflationary”.

Hall suggested that the impact would be felt most in sectors which have contributed significantly to the surge in inflation over the past 18 months, such the food industry.

Food inflation, driven by higher energy costs, has kept the headline rate of inflation above expectations for much of this year. According to the latest reading from the British Retail Consortium (BRC) food inflation remains elevated at 8.8 per cent in October.

Hall predicted that after the increase in wages, a typical producer of chilled food will increase prices by a minimum of four per cent next year. Wages amount to around 10 per cent of costs for food retailers, he said.

While it will likely put pressure on a number of different firms, Kate Shoesmith, deputy chief executive at the Recruitment and Employment Confederation said it could incentivise more people into certain sectors.

“It will be a challenge for some employers to adapt but it should help make working in some sectors that are experiencing labour shortages, such as hospitality, care and retail, more attractive at a time when our data shows more than two million job postings in the UK,” she said.