Retailers have started to explore how they will absorb rising staff costs after the chancellor’s decision to increase the National Living Wage (NLW) to £7.83 next April.

In last week’s Budget, chancellor Phillip Hammond announced that the NLW would rise by 4.4% to £7.83 per hour for workers aged 25 and over, on the recommendation of the Low Pay Commission (LPC). He also accepted the LPC’s advice for other minimum wage rates to apply from April 2018. For youth rates, this represents the largest increase in 10 years.

Sid Ali, owner of five Nisa stores in Aberdeenshire, is worried about the effect that rising costs and increasing wages may have on retailers.

He said: “The National Living Wage is getting to the stage where, I understand what people are trying to achieve, but if you look at the economic outlook we are expected to make cut backs and grow our business in a declining market.

“The way I see it, independent retailers may have to close shops if they can’t make the cost savings on staffing. I’ve just been looking at our rotas and I’m already looking to give younger people more opportunities and recruit them for longer to give them more shelf time.

“Even though wages and the rate at which people pay tax has been changed, there has been no increase in the National Insurance threshold. This means we are encouraged to employ more staff for shorter hours to avoid paying out even more. It’s having a very bad effect on retailers in my area.”

Dean Holborn, owner of two stores in Surrey, is exploring all the options when it comes to coping with the NLW.

He said: “Like everyone else in the industry, we have to carry on as best we can. The rise in wages is going to affect our bottom line so we constantly reviewing our costs and looking at where we can reduce staffing hours.

“That may mean changing our opening hours too. If you look at our news deliveries, that we get at five or six o’clock in the morning, is it worth employing staff at that time when the market is in decline? It’s not always ideal employing younger staff, sometimes it can be counterproductive, but the money has to come from somewhere.”

Harris Aslam, owner of three Nisa stores in Scotland, said: “Staffing is our biggest overhead. The increase in NLW is having an effect on the number of new stores we can build and in what locations, as we look at more cost saving options.”

Harry Goraya, owner of Rosherville Post Office in Gravesend, Kent, added: “We now have the minimum amount of staff that we need to run the store. But there is a danger that the rate will go up again and, along with rates and product inflation, it is becoming very tough to adapt.”

The Chancellor’s announcement of a 4.4% rise in the National Living Wage comes despite gloomy forecasts for the UK economy. The Office for Budget Responsibility has lowered its real GDP forecast to average only 1.4% a year over the next five years. With inflation rising and productivity flat, average real earnings are predicted to drop, making consumers more cautious about spending.