The UK’s SMEs were both well prepared and in favour of April’s National Minimum Wage rise; however, this has come at a cost as 50% say they will see a fall in their profits, research from Close Brothers Asset Finance reveals.
The National Minimum Wage (NMW) is the minimum wage per hour a worker is entitled to in the United Kingdom. These rates are reviewed yearly by the government and from April 2018 all workers aged 25 and over have been legally entitled to at least £7.83 per hour.
“With the review happening annually, the rise should come as no surprise,” said Neil Davies, CEO, Close Brothers Asset Finance. “For many forewarned is fore-armed with the additional costs being factored into their forecasts. That said, the profitability for 50% of businesses will be adversely affected with our research clearly demonstrating the ‘pain’ being felt most by firms employing between 11 and 250 people.
“Those on the smaller and larger end of the size scale – both in turnover and number of employees – seem to be better insulated from the impact of the minimum pay rise.”
Q: Will your profits be affected by the minimum pay rise?
| Employee numbers | 1 – 10 | 11 – 60 | 61 – 250 | 250+ |
| Yes | 40% | 55% | 55% | 51% |
| No | 40% | 35% | 35% | 34% |
| Don’t know | 20% | 10% | 10% | 15% |
Affordability
When asked the question ‘can your business afford the minimum pay rise?’, it was the smaller firms who were most likely to answer either ‘no’ or ‘don’t know’.
“Wages are a major overhead for businesses of all sizes,” said Neil. “And it’s the smaller SMEs who are less able to make savings in other areas to compensate for a rising wage bill.
“What the figures do demonstrate is the health of the SME market with, overall, only 15% being unable to afford the rise in pay. While this is not insignificant, it’s still a positive sign.”
Q: Can your business afford the minimum pay rise?
| Turnover | UK average | Under £250k | £251k – £500k | £501k – £1m | £1.1m – £5m | £5.1m – £10m | £10m + |
| Yes | 74% | 63% | 66% | 78% | 74% | 85% | 89% |
| No | 15% | 17% | 24% | 17% | 15% | 12% | 7% |
| Don’t know | 11% | 20% | 10% | 5% | 11% | 3% | 3% |
Government support
Firms are split down the middle on whether they have received enough government support for the latest rise in the minimum pay rise, with some strong regional variations.
“Businesses in Wales feel the least supported, which is not related to either their ability to afford the rise or their support for it, which are both very high,” said Neil. “However, of all the regions, Welsh firms’ profitability will be the most affected with 58% admitting a dip in profits.”
Q: Has your business received enough government support for this latest minimum pay rise?
| Yes | No | |
| UK average | 51% | 49% |
| North East England | 50% | 50% |
| North West England | 53% | 47% |
| Yorkshire/Humberside | 48% | 52% |
| East Midlands | 49% | 51% |
| West Midlands | 63% | 37% |
| East Anglia | 51% | 49% |
| Greater London | 59% | 41% |
| South East England | 57% | 44% |
| South West England | 55% | 45% |
| Scotland | 54% | 46% |
| Wales | 36% | 64% |
| Northern Ireland | 38% | 63% |
