Biggest increase in NMW in years brings extra misery for small businesses
3.5 million employees are due to get a massive pay rise in April 2025, as the chancellor announces increases to National Minimum Wage ahead of tomorrow’s Budget.
“Many small business owners are already struggling to keep their heads above water and the additional costs anticipated in today’s budget, including tax hikes, will be enough to cripple some, resulting in layoffs and redundancies.
“The proposed increases to national minimum wage are causing real headaches and concerns for many SMEs. The change, which is far higher than the current rate of inflation, would increase the minimum wage from £11.44 to £12.21, adding £1,400 to the annual salary of a typical minimum wage worker. For the average small business with 10 staff, all aged 21+ on national living wage, this would be an increase of £14,000 per year.
“Young workers will see an even bigger jump in pay, with rates for those aged 18-20 due to increase by 16% to £10 per hour, and 16–17-year-olds seeing an 18% increase with their hourly rate moving to £7.55 per hour.
“The knock-on effect could have significant impact on employers hiring younger workers, or apprentices. It’s likely that many smaller businesses will struggle, leading to lost opportunities for those looking to enter the workforce for the first time.
“For example, the current NMW for a 16–17-year-old is £6.40 per hour. The increase in April will see each employee getting an additional £2,093 per year. If Labour decides to go further, following through on their election pledge to remove the age bandings, this will add even more substantial cost. The same 16-17-year-old could then see an additional bumper pay raise of £4.66 per hour, or £8,481 per person per year, if the government brought everyone onto the same level, regardless of age.
“While this may be good news for employees, it’s yet another cost that will add pressure to small business owners struggling with rising costs, expected increases to NICs and tax hikes. Such a large jump could have a significant financial impact on those who employ minimum wage workers. There is also likely to be a knock-on effect with employees who earn above the current minimum wage expecting a pay raise to maintain the gap between NMW and their pay. It’s highly likely that we will see job losses and some businesses going under due to the increased financial burden being placed upon them.”