Survey: Employment costs damage prospects

Three-quarters of businesses have seen their costs increase this year through changes in employment legislation, according to a new survey.

West & North Yorkshire Chamber contributes to the annual workforce survey of the British Chambers of Commerce.  Findings reveal that pensions auto-enrolment, the National Living Wage (NLW) and the Apprenticeship Levy have increased the cost base of businesses, and could lead to reduced opportunities for investment and wage growth.

The rise in NLW this year increased employment costs for 50% of UK firms. In the North, that figure rises to 55%, whereas in the South it is 43%.

For the UK to remain an attractive and competitive environment going forward, action is needed to prevent unsustainable rises to the cost of doing business. Chambers are asking for no new upfront costs or taxes – which sap investment, growth and recruitment potential – to be imposed on business for the rest of this parliament.

Survey findings include

  • Three quarters (75%) of respondents report an increase in costs as a result of pensions auto-enrolment, with nearly a quarter (23%) indicating a significant increase
  • A fifth (20%) of businesses have seen costs increase from the introduction of the Apprenticeship Levy, and 8% from the Immigration Skills Charge
  • Based on the forecast that the National Living Wage will increase to £8.75 per hour by 2020, 38% of respondents said in response that they would raise prices of products and services, with a further 25% expecting to reduce pay growth
  • Consumer-facing industries were particularly affected by the rise in the NLW, with 73% of B2C sector firms – including wholesale, retail, accommodation and foods sectors – seeing an increase in costs. In comparison, 56% of manufacturers and 41% of B2B services report higher costs
  • 25% of businesses say they would respond to future planned increases to NLW by reducing pay growth for staff, 21% by reducing staff benefits and 20% by scaling back recruitment

An info-graphic of the results is available here.

Stephen Wright, Chairman of West & North Yorkshire Chamber, said:

“Many employers in Yorkshire are facing serious skills shortages. It is important that they have the resources and flexibility to invest in their workforce and the future needs of the business.  Employment is one element of the high upfront cost of doing business.  The cumulative impact of the changes, and the pace of their introduction, is a cause for concern and a challenge for many firms.  There is little scope for firms to absorb further costs without damaging their competitiveness and growth prospects. The government must ensure that there are no upfront further costs or taxes on businesses and entrepreneurs for the remainder of this parliament.”

Jane Gratton, Head of Business Environment & Skills at BCC, said:

“Businesses are under increasing pressure from the burden of employment costs, and this will influence the choices they make and outcomes for employees. Higher employment costs impact on the bottom line and reduce the resources available to invest in the business and its people.

“Our survey shows that two thirds of businesses will need to take action in response to proposed increases in the National Living Wage over the next three years.  Firms are most likely to respond by raising prices or adjusting employee pay growth and wider benefits.  Increasingly, manufacturers are looking towards greater use of technology and automation. There comes a point at which rising employment costs can no longer be absorbed through reduced profits.”