Forman & Son MD Lance Forman wants politicians who know about business
PUBLISHED: 09:59 22 July 2015 | UPDATED: 09:59 22 July 2015
The trouble with politicians is think they can trump economics with politics and it works sometimes, but never for long.
Here we are once again patching Greece but their departure from the Euro is just a question of time.
George Osborne’s National Living Wage is another example of a political decision being made at the expense of economic reality and I believe, in time, it will backfire badly, especially as the cost of this measure will be placed squarely on the shoulders of small businesses, who can least afford it.
It is small businesses which drive growth and employment in the UK so why punish them by setting the wage rates they have to pay… at a rate they cannot afford? Wage rates in the private sector should be a decision for employer and employee only.
To give an example of the economic lunacy of this new policy, let’s take a typical restaurant or hospitality business; ie a business which would normally have quite a few employees in relatively low skilled work. There are many such businesses in the UK and especially in London.
Typically such a business would spend approximately one third of its revenue on food and materials; one third on basic wages and one third on rent, management costs and overheads.
If it’s lucky and does its sums well it might make five-10 per cent profit at the end of this. With minimum wages going up from £6.50 to £9 per hour, that is an increase of 38pc on wages.
If the wage part of the equation increases by 38pc, that means that the overall costs of the business will have risen by 12pc, yet if the business only makes five-10pc profit, it certainly cannot afford a cost increase of 12pc and will most likely have to liquidate, or else lose employees.
The measure which sounds appealing on the face of it, as people get paid more, and which surprisingly come from a Conservative government is not the way to deal with tax credits.
The best way to deal with low wages is to help bring down the cost of living, and the way to achieve that is simply to build more homes; a couple of million would be a good start.
This new legislation appears to have been drafted by someone with no experience of ever having run a business and who has never had to employ people.
In my last column I wrote that the next Mayor of London should be someone with business experience.
After this Budget blunder, this is more important than ever.
Politicians need to live in the real world. More from Lance
If you value what this story gives you, please consider supporting the Newham Recorder. Click the link in the orange box above for details.