The body that was created to analyse new government proposals has said that private businesses could pay out £132m in associated costs (including NI contributions) and £672m in wages.
The national living wage was introduced in the July Budget. It will be implemented in April 2016, with a starting wage of £7.20 for over 25s, with an expected rise to £9 per hour by 2020.
The RPC stated that the national living wage was ‘fit for purpose’, but it has criticised the government for not assessing the total cost up to 2020. The government have stated that it refuses to do this as it undermines the work of the Low Pay Commission (LPC).
The RPC stated: “The announcement of the Government’s 2020 target is, arguably, a much more significant constraint on the LPC than setting out an illustrative path of how to get there.”
The impact it has on SMEs
The report conducted by the RPC also stated that the Department for Business, Innovation and Skills (BIS) has analysed the impact on micro and small businesses: “The Department [BIS] recognises that small and micro businesses will be more than proportionately affected, with 16.2% of employees in micro firms and 9.7% in small firms being covered by the NLW, as compared with 5.8% in large firms.”
The BIS stated that if any businesses were exempt from the national living wage, it would create a ‘competitive distortion’, and it would also create a ‘significant disincentive’ for some SMEs to grow.