National Minimum Wage (Amendment) Regulations 2025

Lord Sharpe of Epsom Excerpts

Monday 17th March 2025 Grand Committee

[Lord Sharpe of Epsom (Con)]

My Lords, I thank all previous speakers in this shortish but interesting debate. I will not go through the whole preamble; I note that the National Minimum Wage (Amendment) Regulations 2025 will result in an increase in the national living wage and the national minimum wage, as the Minister has outlined comprehensively. I was also going to heap praise on the impact assessment, which is an exemplar. I am slightly ashamed that I never managed to produce one like that, but I will learn my lesson for the future.

I will develop the themes mentioned by the noble Lord, Lord Fox. We obviously welcome these changes, but we approach them with a degree of caution and have several concerns, most of which are centred on the effect that they are likely to have on small and medium-sized enterprises. As usual, it looks to us as if they will bear the brunt of the increased labour costs. Indeed, it does not look that way just to us; according to the Government’s impact assessment, SMEs will account for 56% of the total monetised increase in labour costs, despite representing only 37% of the employment share. This is a disproportionate impact on SMEs and could have significant consequences, particularly, as the noble Lord, Lord Fox, has noted, given that many such businesses are already struggling with a number of combined pressures.

These are challenging business conditions, as the impact assessment specifically notes:

“Meanwhile, there is some evidence of challenging business conditions for SMEs specifically. Around 42.7% and 36.8% of micro and small businesses, respectively reported having less than three months of cash reserves in September 2024 (compared to 19.2% for large businesses)”.


That is a concerning picture of their cash. As the noble Lord noted, they will also have to wear increasing costs of employment because of national insurance contributions, and two to three times under the non-domestic rates Bill—particularly the hospitality industry, which is suffering disproportionately from some recent employment legislation.

I also concur with many of the things that the noble Lord, Lord Fox, said about the forthcoming Employment Rights Bill. As far as I can recall, the Government’s impact assessment for that Bill, which I think was published last week, said that UK businesses will pay an additional £5 billion as a consequence of that Bill but that it “could have” a potential “positive impact on growth”. That is not exactly a ringing endorsement from the Government’s own impact assessment when it comes to that legislation, which I am sure we will all scrutinise.

The CBI has raised concerns about the ability of businesses to absorb all these increases without affecting their bottom line. As it points out, while the national living wage has been effective in supporting low-income workers, it also adds pressures to businesses at a time when productivity growth is stagnant. This pressure, it argues, makes it difficult for firms to invest in the technology and innovation needed to improve productivity and deliver sustainable wage rises in the longer term.

The British Chambers of Commerce has warned that these changes could lead to price hikes, cuts in workplace training and difficulties with recruitment. Given the challenging economic backdrop, it is also vital that we carefully consider how these wage increases will affect SMEs and the economy as a whole.

Wage compression—I think the Minister called it pay differentials—must also be taken into account. As wages at the lower end of the spectrum rise, the gap between these wages and those of higher skilled workers may narrow. That would obviously create distortions in the labour market, which could reduce the incentive to pursue skilled professions or university degrees.

We have to ask whether the Government have considered the full economic impact of all these increases on businesses. How will they continue to support businesses in absorbing increased labour costs without jeopardising their ability to grow, invest and create jobs—and, of course, grow the economy?

The noble Lord, Lord Jones, touched on an extremely interesting point about apprentices. It is not necessarily directly connected to this, but have the Government investigated the effective price increase in employing them, which I think was announced in the Budget, to see what effect that has had on the numbers of people being offered and taking apprenticeships?

We recognise that these regulations are a welcome step towards improving the living standards of low-paid workers. His Majesty’s Official Opposition remain cautious, however, about their potential economic impact, particularly combined with all the other issues that we have highlighted. We support the principle of fair pay for workers but are concerned that the disproportionate burden placed on SMEs and larger businesses in sectors that are already struggling to make ends meet will have unintended consequences. I appreciate that these are general questions, but it would be good to hear some answers as to how the Government are planning to support businesses through these transitions. Much like the noble Lord, Lord Fox, I would also be interested to hear some more details on the fair work agency, if the noble Baroness is able to share them.

[Baroness Gustafsson (Lab)]

My Lords, I am grateful for the support across the Committee for these regulations and thank noble Lords for their valuable contributions to this debate. I will highlight some of the points raised. My noble friend Lord Sikka asked, rightly, given that these are times when our everyday costs are increasing, whether the real value of a lot of these wage rises has already been eroded.