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Businesses Raise Prices in Response to National Living Wage

According to Business Insider, a survey shows that businesses in the UK are raising in response to the National Living Wage. In April 2016, the UK government did away with the National Minimum Wage of £6.50 an hour for workers over the age of 25, and replaced it with a ” National Living Wage” of £7.20 an hour. Rather than cut back on employees, over a third of affected business have raised prices to make up for the wage increase. The report by the Resolution Foundation also showed that 29% had experienced a reduction in profits. The survey, of 500 firms, found that only 14% of businesses were using less labor as a result of the change.

Before the introduction of the National Living Wage, there were widespread fears of widespread layoffs and an increase in unemployment. This does not seem to have been borne out, but instead business are responding with rising prices, and most indicated that they will have to continue on this trend in the next five years. They also expect to ask more of their current workforce as time goes on.

Brexit will have an additional impact on the National Living Wage. The original plan was to continue to raise it until it reaches £9 an hour by 2020. But, the negotiations of trade deals between the UK and the EU could have a significant impact on if it plays out that way. The Resolution Foundation estimated different scenarios of wage growth in the UK, and none looked promising for reaching to goal of £9 target.