Increase in UK minimum wage to cost private-sector employers over 1 billion pounds

The new National living wage introduced by Chancellor George Osborne is set to cost private sector employers over 1 billion pounds annually, warns watchdog the Regulatory Policy Committee (RPC).

According to the RPC, an independent public body and government adviser, the new policy is set to affect 1.7 million employees and cost business 804.4 million pounds in direct wages and non-wage labour costs, such as National Insurance contributions. The RPC also foresees an additional 234.3 million pounds "spillover costs", as a number of employers would have to increase pay rates higher up their staff hierarchy to ensure the wage difference between employees and positions is maintained.

The figures have been calculated on the basis of Osborne's initial proposal for the minimum wage for over 25 year old to 7.20 pounds an hour from April, 2016. However, the final cost to businesses is likely to be higher, as Osborne revealed plans to increase the rate to over 9 pounds and hour by 2020. The RPC has openly criticised the government for failing to assess the total costs of the new policy to 2020.

"The RPC remains of the view that best practice would be for the department to provide an economic appraisal of the full policy ambition, as announced by the chancellor, and not solely an assessment of the impact of the proposed first-year regulatory change," said the RPC in its assessment.

The Department for Business, Innovation & Skills (BIS) added that it remains important for the new policy to offer fair living wages and not damage business. However, in order to reduce the burden placed on employers through the policy, the government is set to increase their allowance from 2,000 pounds to 3,000 pounds, benefiting up to 590,000 employers in the sector.

"We are also cutting corporation tax from 20 percent to 18 percent ... which will benefit over a million firms, save businesses 6.6 billion pounds by 2021 and give the UK the lowest corporation tax in the G20," added the BIS.

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