The much-documented increases in the National Minimum Wage (NMW) and National Insurance (NI) will likely cause much deliberation for many businesses as they plan for the future. Alun Evans, a Partner at our Haverfordwest office, discusses the changes (due in April this year) and, in particular, focuses on the most viable route for businesses: increasing prices.
The answer is at least 8% for most businesses.
Yes- that’s right – in order to stand still, many of our clients will need to increase their prices by at least 8% to cope with the increase in national insurance and the minimum wage.
I appreciate that pricing is determined by the market for some sectors, such as farming. However, for businesses that are able to adjust their prices, the following factors will determine pricing policy:
The minimum wage increase
By way of an example, in a business that employs mostly living wage/minimum wage staff the increase from April 2025 will be 6.7% (£12.21/11.44). If not all staff are on the minimum wage, there will be a corresponding knock-on effect for other staff.
Employers will not need reminding that the living wage has increased by 28.5% in just over 3 years (£12.21/9.50).
The employer’s national insurance increase
The impact of this is more difficult to calculate as the effect of the increased employment allowance will impact each business differently. But on the forecast figures we have prepared a 3% increase would be the minimum and 5% the top end of the range. Let’s assume the higher estimate of 5%.
The overall impact of minimum wage increases and employers’ national insurance
Assuming an increase of 6.7% for the minimum wage and 5% for employers, national insurance gives us 11.7%. However, in calculating the breakeven for a business, the average wage cost and director salary typically make up to 50% of revenue, equating to 5.9% of total costs.
Then there’s inflation on overheads.
CPI is currently running at 3.5%. The Bank of England forecasts that it will increase to 3.7% in 2025 – say 4%. Say overheads amount to 40% of costs, then that increases our breakeven by 1.6%
The effect of wage increase, national insurance and inflation
Total costs are likely to increase by employment costs of 5.9% and overhead inflation of 1.6% – a total of 7.5%. Let’s round up to 8%.
In summary
It is misleading to base pricing on the published CPI figures – you have to factor in future increases in the minimum wage, national insurance, and general inflation.
If you have not already done so, we recommend that you carry out a price increase exercise before the new minimum wage increase takes effect in April 2025.
Get in touch
If you require advice relating to your personal circumstances, send us an email to discuss this further.
