Trade associations have warned chancellor George Osborne that above-inflation increases in the national minimum wage will hurt small businesses.
Osborne told the BBC the UK economy “can now afford” to increase the minimum wage – which currently stands at £6.31 for those over the age of 21 – at a rate above inflation.
He also said it would have to increase to £7 an hour by 2015 for its value to return to where it was before the economic downturn.
The coalition had “got us into a position where we can now see the minimum wage going up for people and, more broadly, I want living standards to go up for the whole country as we fix the economy”, Osborne added.
“With many companies not yet profitable enough to service their own debts the last thing we need is a huge, inflation-busting rise in the minimum wage”
But the Association of Convenience Stores warned dramatic hikes in the minimum wage would put growth and investment at risk for thousands of retailers.
“The government must not play politics with the growth prospects of thousands of small retail businesses,” warned ACS chief executive James Lowman.
“We know that dramatic increases in the minimum wage will lead to three outcomes in local shops: cutting back of hours for existing staff, stopping plans for investment needed to grow, and pressure on business owners to take yet more work on themselves.”
Alexander Jackman, head of policy at the Forum of Private Business, agreed: “The Forum of Private Business has been opposed to increases in the national minimum wage until the UK has seen a sustained recovery and businesses are in a position to afford it. We have not yet reached that point,” he said.
“With many companies not yet profitable enough to service their own debts the last thing we need is a huge, inflation-busting rise in the minimum wage, which will cost jobs in some sectors. We are clear that efforts to tackle the cost of living should not increase the costs of doing business.
Jackman added that raising the minimum wage would also increase other employment costs, like pensions.
“A 50p rise in the NMW may sound innocuous, but to a business employing nine members of staff it equates to an extra £9,000 per year before any pensions or employer benefits are taken into account,” he warned.
“Any proposals looking to offset a rise in the NMW for businesses must take such factors into account.”