Labour costs loom ahead of new financial year

Businesses feel under pressure to raise their prices due to labour costs, according to Chambers Wales South East, South West and Mid’s first Quarterly Economic Survey of the year.

85% of businesses in Wales stated that labour costs, including salaries, pay settlements and contractors, were a key business pressure in the first quarter of the year, with the concern rising from 81% in Q4 of 2024.

Increases to the National Minimum Wage (NMW) and Employer National Insurance Contributions (NICs) from 1 April and 6 April respectively are also factoring into businesses’ plans to raise prices of their goods or services by up to 15% to cover costs. 44% of Welsh businesses surveyed shared that they plan to raise prices because of both NMW and NICs, while 10% suggest that they will increase prices because of the National Insurance increase only.

More than three quarters of businesses in Wales (76%) revealed that the size of their workforce remained constant in the last three months, with the number attempting to recruit in Q1 falling to 40%, compared to 45% in the previous quarter. More than half of Welsh businesses (58%) expect the size of their workforce to remain constant in the next quarter, while 23% plan to increase their workforce.

The Quarterly Economic Survey for Q1 also showcased the successes and confidence of businesses as they began the new calendar year, with 39% experiencing an increase in export sales and bookings, 28% increasing investment plans for plant, machinery, technology and equipment, and 45% predicting that turnover will improve.

Gus Williams, interim CEO at Chambers Wales South East, South West and Mid, said: “In our recent Quarterly Economic Surveys, including this survey for Q1, recurring concerns for businesses centre around labour costs and taxation. As changes are set to come into effect in April, businesses in Wales are having to review their goods and services prices, ongoing costs and recruitment plans.

“While there have been glimmers of optimism in exporting and some aspects of investment this quarter, firms will require reassurance and action from government to avoid stagnating and unlock growth. The Office of Budget Responsibility’s revised growth forecasts suggest that economic growth is less certain this year but will be a longer-term achievement.”