Advisory body predicts that National Living Wage will cost UK businesses ‘more than £1bn’

Government advisory body the Regulatory Policy Committee has estimated that the National Living Wage (NLW) will cost firms an additional £804.4 million in staff and wages costs.

The organisation stated that an extra £234.3 million in ‘wage spillover’ effects from retaining differences in pay will push the cost over the £1 billion mark.

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This total rises slightly further when the public sector is included – within this category, many workers are already paid an amount above the NLW.

The Institute of Directors (IoD) has suggested that implementing the NLW is only one of a series of new costs facing UK businesses.

Head of employment and skills policy at the IoD, Seamus Nevin, stated: ‘A new payroll tax, in the form of the apprenticeship levy, will cost employers £12 billion over the course of the Parliament, while the next tranche of pensions auto-enrolment will affect the very smallest businesses’.

Currently, nine out of ten members of the IoD pay a separate, voluntary Living Wage to their staff members. The voluntary Living Wage is used as an informal benchmark, and recommends that businesses pay their employees a figure of £8.25 an hour, while the suggested rate for those based in London is set at £9.40 an hour.

The new compulsory NLW will come into force in April 2016 and will apply to those workers aged 25 and over. Initially, the rate will start at £7.20 an hour, rising to £9 by 2020.

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