The government's new minimum wage rules are going to cost employers more than £1 billion next year


George Osborne

REUTERS/Andrew Winning

A demonstrator wearing a mask depicting Britain's Chancellor of the Exchequer, George Osborne, holds up fake bank notes outside the Barclays Bank Annual General Meeting at the Royal Festival Hall, in London April 25, 2013.

George Osborne's new £7.20 ($10.91) minimum wage will cost companies more than £1 billion ($1.52 billion) in total when it comes into force in April next year, according to an independent regulator.

According to the report from the Regulatory Policy Committee, the changes will affect around 1.7 million workers across Britain, and cost private employers a minimum of £672 million ($1.02 billion) in wages, as well another £132 million ($200 million) in extras like national insurance.

The cost of the increase will then be topped up to more than £1 billion ($1.52 billion) by what the RPC's report calls "wage-spillover costs." The spillovers will be caused by employers having to put up wages for people already earning more than the minimum wage to maintain so-called "wage differentials" between workers, and ensure that workers get a pay rise if they are promoted. Spillovers will cost roughly £234 million ($355 million), the RPC says.


Under Osborne's changes, all employers will be required to give staff over the age of 25 at least £7.20 ($10.91) per hour, with the aim of paying all staff £9 ($13.64) per hour by 2020, and it looks like the changes will be pretty costly for companies in the private sector.

Numerous employers have already criticised the potential costs of the wage changes. In September, the founder of pub chain Wetherspoons said that Osborne's changes could lead to some of his pubs closing. In November, a survey of 1,000 employers by the Resolution Foundation showed that around 15% will be forced to make redundancies to cope with the forced wage hike.

However, most employers are broadly supportive of the changes and, according to a survey from the Department of Business, Innovation, and Skills last week, 93% of companies think the changes are a "good idea."


Along with assessing the cost of the minimum wage changes to employers, the RPC also used its report to criticise the government for not calculating how much the new minimum rules will cost all the way up to 2020, saying that they should have done more than just "an assessment of the impact of the proposed first-year regulatory change."