U.K. employers warn of cost risks from minimum wage, skills levy

Lowest paid workers will see 40 per cent increase by end of decade
|hrreporter.com|Last Updated: 12/21/2015

LONDON (Reuters) — Britain's government risks intervening too much in the job market with a higher minimum wage and a new levy to fund apprenticeships, which could threaten the country's economic growth prospects, an employers' group said.

"The government must be careful not to sacrifice prosperity for political expediency by saddling businesses with costs that could harm investment, which is critical to increasing productivity," said Carolyn Fairbairn, the director-general of the Confederation of British Industry.

Just over half the services firms that took part in a CBI survey said they would raise their prices, and 27 per cent said they would employ fewer workers after the higher minimum wage is introduced in April.

On the apprenticeship levy, only one in six companies said it was the right approach to fixing Britain's skills shortage. Almost half said it would be costly and bureaucratic, the CBI said as it released the survey on Monday.

Finance minister George Osborne announced the new minimum wage for workers aged 25 and over in July, bypassing an independent commission which usually sets its level. By the end of the decade, it will represent an hourly pay rise of 40 per cent for the lowest-paid workers.

Last month, Osborne set the apprenticeship levy at 0.5 per cent of wage bills on large and medium-sized companies, a decision that angered some business leaders.

Neil Carberry, the CBI's employment director, said businesses agreed with the overall aim of improving skills and raising the base level of pay. "But we have a labour market which performs. Flexibility is absolutely essential to firms," he added.

The CBI survey showed the percentage of companies expecting to increase the size of their workforce over the next 12 months, minus the percentage who planned to cut jobs, fell to 30 per cent from 38 and 39 per cent in the previous two years.

Carberry said the decrease reflected rising employment in Britain in recent years.

On pay, 16 per cent of employers said they expected to raise salaries for their workers faster than the retail price index of inflation, compared with 12 per cent a year ago, while the proportion whose pay would rise at or below the rate of inflation fell.

RPI inflation stood at 1.1 per cent in the 12 months to November, and Britain's official budget forecasters have said they expect it to rise to 2.7 per cent by early 2017.

The Bank of England is looking closely at pay growth as it considers when to start raising interest rates.

The survey showed a big increase in concern among employers about their ability to recruit migrant workers. That mostly reflects tight visa rules for hiring staff from outside the European Union but also Britain's planned referendum on its membership of the EU, Carberry said.

The survey of 342 firms, which together employ nearly 1 million people, was carried out between August and October.

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