CHAMPIONS of the National Living Wage may feel the 30p increase in the standard hourly rate to £7.50 from April could be justified on economic and social policy grounds.

It put more money into the hands of lower paid workers, who are more likely to spend any additional income they get than better off types.

As Bank of England governor Mark Carney noted yesterday that uncertainty about Brexit had made many firms reluctant to give big pay rises, the resulting boost to demand may have been especially valuable.

But research findings published today on the impact of the increase on the key small business sector point to potentially damaging effects.

The survey by the Federation of Small Businesses suggests the rise has posed big challenges for small firms, which are less able to cope with cost increases than bigger fish.

It may have had a harmful effect on employment by prompting some small firms to shed staff and making others less inclined to recruit workers.

Small and medium sized enterprises account for a bigger share of private sector employment than large ones.

As a fifth of respondents to the FSB survey had reduced staff hours the four per cent increase in the hourly rate may not have been accompanied by a matching rise in many workers’ pay packets.

Many firms have cut investment since the rate change, reducing demand for goods and services provided by others and potentially impacting on their own growth.

Some may feel that if we want to keep increasing the living wage small firms should be compensated in some way.