Businesses under pressure as costs soar

3 in 4 businesses have seen their overheads shoot up as a result of auto-enrolment, according to a survey from the British Chambers of Commerce (BCC).

Speaking to 1,461 firms around the UK, the BCC found 23% of respondents indicated a “significant increase” in costs related to providing workplace pensions.

More than 7.5 million workers are currently saving into workplace pensions after auto-enrolment was introduced in October 2012.

Other factors, such as increases to the national living wage (NLW) and the apprenticeship levy, also piled the pressure on businesses.

1 in 5 firms felt costs increase following the introduction of the apprenticeship levy in April 2017, while a further 8% felt the pinch from the immigration skills charge.

Jane Gratton, head of business environment and skills at the BCC, said:

“Higher employment costs impact on the bottom line and reduce the resources available to invest in the business and its people.

“It is the cumulative impact of all of these changes, and the pace at which they are being introduced, that causes the greatest concern and poses the biggest risk.

“There is little scope for firms to absorb any further costs without there being damaging effects on competitiveness, growth and opportunities for people in the workforce.”

National Living Wage – the impacts

The NLW increased to £7.50 an hour for employees aged over 25 in April 2017. This hourly rate will rise to £8.05 in April 2018. 

This year’s NLW rise increased costs for 73% of consumer-facing industries, including those businesses in wholesale, retail, accommodation and food sectors. 

Costs also went up, albeit on a lesser scale, for 56% of manufacturers and 41% of B2B services. 

In addition, businesses in northern England (55%) and the Midlands (51%) were more likely to be impacted by the NLW hike, compared to firms in southern England (43%).   

Absorbing future costs

With the NLW estimated to reach £9 an hour by 2020, most businesses are planning ahead to consider ways to absorb future costs. These include:

  • raising prices of products and services (38%)
  • reducing pay growth (25%) 
  • reducing staff benefits (21%)
  • scaling back recruitment (20%)
  • hiring employees on flexible contracts (15%).

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