In our latest report in the Future of the Minimum Wage series, we examine employers’ responses to past increases in the National Minimum Wage (NMW) and National Living Wage (NLW) and consider how future increases might impact them. New data in the report shows that the majority of businesses don’t believe an increase will have a negative impact on them or wider UK employment levels. In fact, employers believe an increase would boost the nation’s productivity. Most significantly, at the time of the poll a majority of businesses (54%) supported the UK government’s policy of increasing the NLW to two-thirds of median income (projected to reach £10.50) by 2024. This includes just over half (52%) of businesses most likely to be impacted by this change – those with over a quarter of their employees currently paid below this level.

There are some potential negative consequences from the policy, however, with a fifth of businesses reporting they would pass on this cost to the consumer, 15% saying they would hire fewer members of staff, 10% saying they would increase the use of temporary or flexible contracts, and the same proportion reporting plans to reduce other staff benefits, such as bonuses, discounts and breaks. Most importantly, these measures are more likely to be taken by certain industries including hospitality and leisure, manufacturing, and retail. These findings are particularly concerning in the light of the coronavirus crisis, as these sectors have been most hit.

Additionally, we found that these same sectors, along with medical and health services are more concerned about the impact of a higher minimum wage more generally on their organisation. Around two fifths of businesses in each of these sectors fear a negative impact of wage floor increases on their organisation. It is perhaps unsurprising that the sectors with a higher concentration of low paid workers are more wary of the potential impact of a higher wage floor.

Recent CIPD research has also highlighted the potential concerns for employers around NLW increases during the coronavirus crisis. They found that a majority (58%) of employers say they would support a freeze of the NLW at its current rate in April 2021, when the next increase is due, with only a quarter (25%) opposing such a freeze. The sectoral impact is also revealed through their research, with freezing more popular among those in transport and storage, manufacturing, construction, administrative and support services, and hospitality. While there is employer support for the medium-term goal of reaching two thirds of median pay in the coming years, there appears to be some unease about the immediate impact of increases during a recession, particularly in hard-hit sectors.

These findings highlight an overall support from employers for a higher minimum wage, but that this comes with certain concerns. It will be important for the government to consider the choices some employers will need to make in order to accommodate this higher wage floor. The target of two thirds of median income by 2024 may still be achievable, and indeed important to support household incomes as we recover from the Coronavirus recession, but increases in the wage floor must be balanced against the risk of adding to unemployment and should come with support for businesses to adapt. Should the policy go ahead as planned, our research shows that businesses would welcome measures such as helping them to invest in training and skills (37%) and temporary reductions in National Insurance contributions (33%) from the government.

We would welcome contributions and insights from more employers into the critical questions raised as a result of this report and the uncertainty ahead for the economy and how this relates to minimum wage policy. These will be used to inform the recommendations in our final Future of the Minimum Wage report, which we will publish with Carnegie UK Trust in the autumn.

Becca Gooch is a research manager at Learning and Work Institute.