HR · 14 September 2016

Record employment and wage increases dampen fears of rising small business costs

Employment rates in the UK have reached a record 74.5 per cent.

Small UK firms are showing resilience in the face of rising National Living Wage (NLW) costs, new employment figures from the Office of National Statistics (ONS) have suggested.

The employment rate in Britain reached 74.5 per cent in September – equaling the highest employment rate ever recorded in 1971 – the ONS revealed.

Comparing employment statistics between May and July 2016 with the same period last year, the ONS discovered that the unemployment rate dropped 4.9 per cent, with a total of 1.6 million Britons looking for work.

Alongside stable unemployment levels, average earnings for individuals in work were up 2.3 per cent on 2015.

The data supports that of a recent study from the Federation of Small Businesses (FSB), which found that smaller firms are showing resilience to the rising cost of the NLW.

Mike Cherry, national chairman of the FSB, said: “Small employers have stretched to meet the challenge set by the NLW, with many paying their staff more by reducing operating margins.”

The FSB research showed that 59 per cent of small business owners were meeting the financial demands of the NLW by narrowing margins or by absorbing costs.

The study also found rising labour costs to be the primary expense for almost half of small business owners, with 46.7 per cent of FSB members viewing the wage increases of the NLW as the biggest driver of costs to their business.

Commenting on the ONS employment figures, Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted that the rise in the rate of those in work “remains supported by surging self-employment”.

Self-employment accounted for 15 per cent of the entire workforce in the UK – an increase of 224,000 to 4.76 million.

The shift towards self-employment in the UK comes alongside news that the rate of inflation remained at 0.6 per cent from July to August this year.

Further research from the Association of Independent Professionals and the Self-Employed (IPSE) released in May showed a growing fear of inflation amongst freelance workers, with two thirds worried that business costs would rise over the next 12 months.

Speaking on the latest inflation rate figures, Lorence Nye, IPSE economic policy advisor, commented: “Freelancers will be relieved to see that prices have actually been little affected by Brexit and the falling value of sterling.

“The self-employed generally travel much further for work than their counterparts in employment, with hotel costs one of their biggest expenditures, so the fall in accommodation prices is good news.”

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.