As you may have heard, Rishi Sunak, Chancellor of the Exchequer announced during the autumn budget that the minimum wage will be rising to £9.50 for those over 23’s starting April 1st 2022. This is an attempt to tackle the rising cost of living due to a combination of Brexit and Covid-19, causing shortages in vital areas of the economy. 

This follows business secretary, Kwasi Kwarteng saying that inflation in the UK has a real cause for concern with many people across the country struggling to afford fuel, food and transport. There are some critics commenting that the minimum wage increase won’t solve the cost of living crisis, and as prices continue to rise, the salary increase will be swallowed up almost immediately – especially if it continues on the upward trajectory (not to mention the anticipated national insurance hike and universal credit uplift). 

Smaller businesses may struggle, especially if they are still fighting to get back on their feet following COVID. This could result in an increase in prices to cover the higher wage outgoings. Kate Nicholls, chief executive of trade body UKHospitality, said the increase would “undoubtedly result in higher prices”, with smaller businesses facing the heaviest burden.

With the above being said, supporters of the minimum wage increase are pleased with the number of individuals receiving the generous rise. Sunak tweeted: “We’re increasing the National Living Wage next year by 6.6%, to £9.50 an hour. For a full-time worker, that’s a pay rise worth over £1,000. It will benefit over 2m of the lowest-paid workers in the country.”

In particular, this increase looks to give a boost to help low-paid, younger workers who “are among the worst hit by the pandemic” (according to the BBC), with the closure of pubs, clubs, cafes and restaurants. The increase will give more young people more disposable income so they can get more from their work or, as the Chancellor said, make work pay. 

How the Minimum wage will impact your business 

If you are an employer, you may be wondering what impact the increase in minimum wage will have on your business. Initially, you may just think that your staff on minimum wage will need an increase, and you would be right. However, you also need to consider your employees currently being paid above minimum wage, especially if their roles are highly skilled and in high demand. Now that the minimum wage has increased these employees might start to think about an increase in their wage too, which will need to be discussed. 

A study done in America assesses how an increase in the wages at the bottom of an organisation can cause discontent at the top if wages are not adjusted across the board –  read more on this research here. With this in mind, we recommend you be transparent with your staff and have a discussion with your finance team/advisor to ensure the salaries you are offering are reasonable, meet expectations and support staff retention. 

To conclude, the increase in minimum wage will have a positive effect on those heavily impacted by the coronavirus and the hike in inflation. However, businesses need to strategise how they are going to respond in order to ensure they can maintain profitability and retain staff (at all levels). It will be interesting to see how the anticipated economic changes this year will impact this announcement.