Labour's £13 minimum wage to cause widespread job losses and higher inflation

Two of Britain's biggest business organisations have warned Labour's planned increases to the national living wage beyond £13 an hour could damage the jobs market and fuel inflation.

They argue that employers are already struggling to absorb higher labour costs.

The Confederation of British Industry (CBI) and the British Chambers of Commerce (BCC) said successive above-inflation increases have placed mounting pressure on businesses, with many already cutting jobs, delaying investment and raising prices.

A BCC survey found this year's 4.1 per cent increase, which raised the national living wage to £12.71 an hour, has already prompted one in 10 firms to reduce staffing levels.

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The business groups warned further disruption could follow if the Government presses ahead with additional above-inflation increases in the coming years.

They also said many employers are passing higher employment costs on to consumers through price increases, raising concerns about inflation despite easing geopolitical pressures.

The Low Pay Commission said in March it was prepared to recommend an increase of up to five per cent for 2027, with its central projection of £13.18 representing an increase of around 3.7 per cent above inflation.

Kate Shoesmith, deputy chief executive of the BCC, said: "Any further above-inflation increases to the national living wage will only tip more firms over the edge."

She added that many employers had already reached the limit of what they could absorb following a series of significant increases to wage costs.

The BCC is calling for a more modest increase of 2.4 per cent next year, which would take the national living wage to £13.02 an hour.

The organisation has also urged ministers to abandon proposals to remove lower minimum wage rates for younger workers.

Its intervention adds to growing concern among employers and economists about the pace of national living wage increases and the pressure they place on businesses.

The BCC said the gap between employing younger workers and older employees has narrowed so sharply that it is becoming increasingly difficult for younger people to secure opportunities in the labour market.

Earlier this week, the Resolution Foundation, a think tank with close links to Labour, also urged the Government to reconsider plans to align youth pay rates with the adult national living wage.

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The organisation said its intervention comes as the number of young people who are neither in education nor employment has risen above one million.

Workers aged 21 and over are currently entitled to the national living wage of £12.71 an hour, while those aged between 18 and 20 receive a minimum hourly rate of £10.85.

Labour has pledged to abolish what it describes as "discriminatory" age-based pay bands as part of its wider employment reforms.

Matthew Percival, a CBI director, said: "Recent increases in the National Living Wage have significantly outpaced productivity growth, at a time when firms are already dealing with rising energy prices, higher taxes and growing employment costs."

He added: "That mismatch is forcing difficult trade-offs for businesses, with many forced to reduce hiring, lower investment or raise prices."

A Government spokesman said ministers consider the independent recommendations of the Low Pay Commission when setting minimum wage rates and seek to balance the needs of workers with business sustainability and wider economic conditions.

Fresh figures published by the BCC today also suggested business confidence remains subdued, with investment intentions at their lowest level since the pandemic.

The survey found just 17 per cent of businesses expect to increase investment in the coming months as sales growth slows and operating costs continue to rise.

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