Two of Britain's largest business bodies have warned that Labour will put more jobs at risk and stoke inflation if it pushes the minimum wage significantly above the £13 per hour threshold.

The "Confederation of British Industry" (CBI) and the "British Chambers of Commerce" (BCC) said that a series of large wage increases – which have outpaced inflation – have already left employers in a highly precarious position, and that any further increases could lead to more disruption, according to a report published by the "Daily Telegraph" and reviewed by "Al Arabiya Business".

The "Low Pay Commission", responsible for helping to set the minimum wage, announced in March that it intends to recommend an increase of up to 5% in 2027. The middle estimate set by the commission at £13.18 per hour would represent an increase of around 3.7%, a rate above inflation.

However, Kate Shoesmith, Deputy Chief Executive of the British Chambers of Commerce, said: "Any further increases to the 'National Living Wage' above inflation will only push more businesses to the brink of collapse."

A survey by the British Chambers of Commerce showed that the 4.1% increase in the minimum wage to £12.71 this year has already led one in ten companies to lay off workers, and any further increase is expected to lead to more job cuts. The chambers also noted that companies are increasingly raising prices due to higher employment costs, raising fears of a new wave of inflation despite easing geopolitical tensions.

In a submission to the Low Pay Commission, the chambers explained that the cost differential between hiring young workers and experienced workers has become "negligible or non-existent" to the extent that less experienced employees are increasingly losing job opportunities.

The British Chambers of Commerce is calling for wage increases closer to 2.4% in 2027, reaching £13.02 per hour.

It also urged the government to suspend its plans to abolish lower minimum wage bands for young workers.

This step joins a growing series of warnings from employers and economists.

In this context, the "Resolution Foundation", which has close ties to Labour, this week urged ministers to abandon plans to align youth wages with the "National Living Wage", as the number of young people not in education, employment, or training exceeds one million.

Currently, workers aged 21 and over are entitled to a minimum wage of £12.71 per hour, while those aged 18 to 20 must receive at least £10.85 per hour.

Labour has pledged to abolish what it describes as "discriminatory" age bands.

However, Matthew Percival, a director at the Confederation of British Industry, said the increases have become a burden that companies find hard to bear. He said: "Recent increases in the National Living Wage have significantly outpaced productivity growth, at a time when businesses are already dealing with rising energy prices, higher taxes, and escalating employment costs."

He added: "This disparity forces difficult choices on businesses; many are forced to cut hiring, reduce investment, or raise prices."

A government spokesperson said: "We take into account the independent advice provided by the Low Pay Commission when setting minimum wage rates, to ensure the right balance between workers' needs, businesses' ability to pay, and the overall economic impact."

These remarks come as new data from the British Chambers of Commerce shows that companies are scaling back their investment plans, with the number of firms planning to boost growth falling to its lowest since the pandemic.

Only 17% of businesses expect to increase investment in the coming months, amid slowing sales growth and rising costs.

These costs include fuel prices, which have been volatile due to tensions related to Iran, and fuel costs are expected to rise further after tax increases next year.

Advertisement

Advertisement