The introduction the national living wage (NLW) could see employers reducing job creation, raising their prices and cancelling investments, according to research by the Federation of Small Businesses (FSB).

Over a third (38%) of the small businesses surveyed said a NLW of £7.20 an hour will have a negative impact when introduced in April 2016. Over half (54%) said that the increase to £9.00 an hour by 2020 would have adverse effects, while only 6% thought that the NLW would be a positive change to their business.

Small businesses in the wholesale, accommodation and retail sectors are most likely to say that NLW will have a negative impact on their finances.

The cost of employment index published by FSB compares wage and non-wage costs for small businesses across a range of sectors. The model suggests that for a small retail business with 6 staff members over 25, the NLW will cost an extra £5,900 a year from April 2016.

The index also suggested:

• annual labour costs for retail businesses stand at £127,700
• costs are set to rise to £133,600 in April 2016, even after claiming employment allowance
• £3,000 of potential savings to employers from lower national insurance contributions will reduce the £8,900 high wage costs but will require a further £6,000 to cover additional costs.

FSB national chairman, John Allan, said:

“The UK economy has been performing well, but we should not allow this to make us complacent. Businesses worked hard to weather the financial crisis, keeping on staff despite pressure to cut headcounts. Now times are better we know members are beginning to raise wages and take on new staff.

“It’s important that the independent Low Pay Commission continues to play a central role in setting the minimum wage – and that includes deviating from the government’s plan to raise the national living wage to over £9 an hour by 2020, if it becomes apparent that the economy cannot afford it.”

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