The Confederation of British Industry (CBI) has warned that small businesses in the UK are becoming increasingly uneasy about rises in the minimum wage.
The CBI has voiced its concerns over the effects a £5 minimum wage would have on UK employees.
While the increase may be acceptable to many small businesses, the trend of annual inflation is a growing concern.
The minimum wage rises by 7.8 per cent to £4.85 an hour in October after already increasing by 7 per cent last year. A similar rise next year would take it to £5.20.
In the light of current trends, the pressures of rising employment costs in the UK may lead to more businesses transferring its employee base to cheaper parts of the world, such as India or China.
The minimum wage is more associated with retail; domestic cleaning, hairdressing and other service based industries. However the CBI warns that manufacturers will also begin to feel the strain.
Digby Jones, head of the CBI, said, “The unions will say that this country can afford five pounds. I have not heard one employer say it should go up. £4.85 is not dangerous but it is moving away from being a safety net to having a deleterious effect.”
Another cause for concern is that employees higher up the pay scale are starting to notice gradual shrinkage in pay differences between themselves and junior workers.
Richard Dodd, a spokesperson for the CBI, said, “The Low Pay Commission has to understand that minimum wage increases on this scale have a ripple effect at higher wage levels.
“Annual above-inflation rises mean that the problem renews itself every 12 months.”
However the TUC have argued that a £5 would still be too modest.
Brendon Barber, General Secretary of the TUC, said, “Every time an increase is proposed we hear the same noises from employers forewarning the demise of the economy and the worrying implications for British jobs, yet every increase achieved since 1999 has been absorbed without any adverse effect on the economy.”
However, only time will tell if the small business sector, with less financial security, can absorb the minimum wage increases.