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Comments from ACCA
October 2004

ACCA is pleased to comment on the Consultation Paper on the National Minimum Wage (NMW). Over half ACCA's 100,000 members work in or service SMEs (Small and Medium-sized Enterprises) and so we have a special interest in issues affecting the business efficiency of this sector.

ACCA recently conducted a survey on the impact of the NMW with 3000 of its practising members, who represent over 150,000 small businesses. The results of this and previous surveys in 1999 and 2000 form the basis of our response.

In principle, ACCA supports the NMW. We believe that, so far, the NMW has not had the large negative impact that was widely predicated. It is important that workers are paid a fair wage and that employees, particularly younger individuals, are not exploited. We consider, however, that there needs to be a balance, with an NMW rate which is both equitable for the employee and the employer and which does not adversely affect business sustainability.

The findings of our survey are summarised as follows.

(i) The NMW is having an increasing impact on small businesses. It is evident that members' clients now have stronger views on the NMW. In 2000 and 1999 the majority of members perceived their clients to be �indifferent' towards the NMW. In the latest survey, members see their clients as being significantly more �divided' on the issue, with increasing numbers being either �for' or �against'.

(ii) There has been a substantial decrease in the number of members' clients who have not made any changes as a direct result of the NMW (from 71% in 1999 and 62% in 2000, to 43% in 2004). The main changes that businesses have made to their working practices are increases in workloads (17%), reductions in overtime (18%) and cuts to working hours (17%), and many have decided not to recruit new staff (23%). This bears out the point made in the previous paragraph, that the NMW is having an increasing impact on small firms.

(iii) The proportion of members who believe that the NMW has had a negative effect on their clients' profitability has substantially increased (45% in 2004 compared with 22% in 2000). On average, 35% of members thought that the NMW has had an effect on their clients' pay differentials and pay structures. This has increased significantly from 17% in 1999 and 13% in 2000.

(iv) The impact of the NMW has a disproportionate effect on small businesses, which often lack the resources to implement increases. Businesses in certain sectors are particularly affected. The main sectors that members perceive as being most affected are Hotels and Catering, Retail, Manufacturing and Domestic and Personal Services. Evidence demonstrates that it is also important to consider the indirect effects of the NMW. For example, research indicates that some care homes, which already pay above the NMW have experienced recruitment and retention difficulties as other businesses become more attractive in comparison, owing to NMW increases. ACCA believes that the impact of the NMW on different sectors requires more consideration by the Low Pay Commission.

(v) The majority of members (67%) believe that the new minimum level of £3.00 per hour for 16�17-year-olds will have no effect on their clients' business recruitment policies, alleviating some initial fears as to the �knock-on' effect that this new rate might have on small businesses.

(vi) There was a strong response from members when asked about the new rules governing the pay of output workers. It is clear that the Government should do more to ensure that businesses are aware of the new fair piece rate system for output workers. We found that 66% of ACCA members are not aware that the new system has replaced the previous fair estimate agreements; 61% either disagree or strongly disagree that the Government has provided adequate information on the new system.

(vii) Our members believe that there is a ceiling at which the NMW will definitely become counterproductive. We found that 37% of ACCA's members believe that the present rate up to £5.50 already affects profits, impacts competitiveness and employment, while 45% consider that a rate of between £5.51 and £6.50 would have a significant impact. This will, of course, vary from region to region.

From the findings, the majority of businesses appear to have absorbed the costs of previous rises in the NMW, but the increases are having more impact on businesses profitability and work practices and are a growing concern. ACCA believes that substantial increases at rates much higher than annual inflation, such as the recent 35p rise and the 40p increase in October 2001 are not sustainable. The Low Pay Commission should be careful when considering the size of future increases to ensure that the NMW only rises at small, sensible levels.

To conclude, we would stress that ACCA's surveys have examined members' views only on the impact of the NMW on their clients. In a recent NatWest/SERT Team survey the number of businesses complaining of regulations and paperwork as their most important problem has doubled since last year. Many businesses have been subject to a range of higher costs, such as increased employers' National Insurance contributions. The Low Pay Commission must consider the cumulative effect of different regulatory and administrative burdens placed on small businesses.

Notes

Edwards, P., Black, J & Ram, M (2003) The impact of employment legislation on small firms: a case study analysis. DTI Employment Relations Research Series No. 20.

NatWest/ Small Enterprise Research Team (SERT) Quarterly Survey of Small Businesses in Britain 2004 Q2 Vol. 20. No. 2.

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