Bosses are calling for a freeze in the minimum wage amid the latest signs that Brexit fears are holding back investment by businesses.
Increases in the national living wage — currently £7.50 an hour for workers aged 25 and over but set to rise to about £8.75 by 2020 under Conservative plans — could prevent firms from growing or lead to job losses, according to the British Chambers of Commerce (BCC).
More than 40% of companies have cut back on planned investments because of the Brexit vote, according to a new survey by the CBI. Less than 1% are spending more than they otherwise would have.
Both reports highlight how an inflationary squeeze and rising uncertainty since last year’s EU referendum are making life difficult for businesses.
The BCC said planned rises in the living wage would add to the pain. It is calling for a freeze in real terms, which it says would equate to a 2.7% rise in the next year — with even slower increases in the minimum wage for younger workers.
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The business group argues that firms are already under pressure as skills shortages drive up wages and the fall in sterling since the EU referendum drives up the cost of many raw materials.
“Recent uncertainty over Brexit suggests that the pace of planned increases needs to be reviewed,” said the BCC in a submission to the Low Pay Commission, the independent body that advises the government on minimum wage levels. “Any further increases to the wage floor must be sustainable to avoid damaging impacts on business growth and survival, and corresponding job losses.”
Annual growth in average weekly pay has slowed to just 1.8%, well below the rate of inflation. Slower pay rises for the lowest-paid could deliver a further hit to fragile consumer confidence.
The CBI said moves in exchange rates, the prospect of tariffs on EU trade or reduced access to European workers and general uncertainty over Britain’s future relationship with the EU have all had a negative impact on investment decisions.
“An overwhelming number of those that did report an impact [from Brexit] said it was negative,” said CBI chief economist Rain Newton-Smith. “Government must do all it can to reverse this. Today’s investments are tomorrow’s jobs.”
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The CBI has called on the government to keep Britain in the EU’s single market and customs union for as long as it takes to hammer out a new trade deal with Brussels, in order to reduce uncertainty.
The prospect of a “softer” Brexit has led one influential economic forecaster to upgrade its growth outlook for next year and 2019 to 1.3% and 1.8% respectively. EY Item Club previously forecast growth of just 1.2% and 1.5%.
However, Item Club downgraded its forecast for this year to 1.5% from 1.8% because of the inflationary pressures hitting consumer demand.
