Minimum wage troubles small firms

BRITAIN'S small businesses are heading for a showdown with trade unions over mounting costs of the minimum wage, which next month goes up by more than double the inflation rate.

The hourly rate will increase by 30p to £4.50 from 1 October, which could lead to a big squeeze in profits and financial problems for small concerns, warns a report by consultants KPMG.

Up to 1% of turnover could be eroded at a wide range of service sector firms, from privately-owned pubs and restaurants to those employing a high ratio of shop-floor workers, the report says.

'Something needs to be done about this,' said a spokesman for the Federation of Small Businesses. 'Many firms are operating on low profit margins and are finding it impossible to raise prices due to fierce competition.'

The pressure group warns many firms will come under even more financial stress if trade unions win their campaign to increase the minimum wage to £5 an hour. It is lobbying the Low Pay Commission, the poverty watchdog.

A spokeswoman for the GMB union said: 'There were a lot of scaremongers who said millions of jobs would be lost but that proved untrue. Someone on £5 a hour working for 48 hours a week would still take home only a little over £11,000 a year. That is not greedy.'

KPMG says the impending wage rise, coupled with an earlier increase in national insurance, will be felt 'keenly' by firms on small margins.