A big increase in minimum pay could kill the golden goose, argues Peter Pybus, rural spokesman for the Yorkshire and Humber Policy Unit of the Federation of Small Businesses (FSB), Chairman of the FSB Yorkshire Dales branch and

a national councillor

LIKE MANY areas which have had to replace the dominant industries on which their wealth was created, York and North Yorkshire have a large proportion of small businesses.

The decline in engineering geared to the rail industry over the last generation, and the encouragement given to new enterprises by some local and central government initiatives, such as Business Link York and North Yorkshire have made the area a fertile seed bed for small businesses both in York and in surrounding rural areas.

These enterprises all play an important role in the local economy, offering jobs and incomes that many of the traditional industries which grew up over the last 150 years can no longer provide.

As with most of the UK, small businesses are central to York and North Yorkshire's local economy.

More than 90 per cent of all workers make their living through small businesses. However, to be successful and to continue to play their essential economic role, small businesses have to be able to compete effectively in markets at home and overseas.

This is why the Low Pay Commission's proposal for a 15.5 per cent increase in the national minimum wage over the next two years is bad news for small businesses. The increase would take the minimum wage from its current rate of £4.20 an hour to a new rate of £4.50 this October and £4.85 in 2004.

The proposed increase is substantially higher than inflation and easily outstrips average earnings increases. It will particularly hit a huge range of small businesses tied into long-term contracts.

Because of the highly-competitive environment in which small businesses trade, they are usually unable to pass on the extra costs.

Indeed, many are already having to absorb the forthcoming National Insurance increases as well as the huge hike in the cost of liability insurance.

This proposed minimum wage increase could well be the last straw.

Small firms are also under pressure to maintain pay differentials between their junior and more experienced staff to create a career path.

Even in a business with only one or two employees on the minimum wage, an increase way above the rate of inflation is likely to have a big impact on the overall wage bill.

To offer employment, small businesses have to be profitable. Profit margins can be squeezed only so far, especially if there is no guarantee of an equal productivity rise.

Politicians expound the benefits of small businesses only when it is politically expedient to do so. With this proposal the Government is sadly showing small enterprises exactly where they stand in its list of priorities.

To survive under this increase, there is a real danger that employers running small businesses will have to slash costs, including possible reductions in their workforce. That will not help anyone, especially in York and North Yorkshire which has only just bounced back from the setbacks created by foot and mouth disease.

Updated: 09:20 Tuesday, April 22, 2003