A report published by the Federation of Small Businesses (FSB) has suggested that four in ten small firms are having to increase their prices as a direct result of higher wages.
According to the FSB, small business owners are having to cut profits and productivity-enhancing investments in order to better absorb 'inflation-beating wage increases'.
An FSB survey of more than 1,000 businesses found that 51% of small firms were paying their employees at least £8.21 per hour prior to this becoming the National Living Wage (NLW) in April.
Many business owners have chosen to pay themselves less in order to accommodate the NLW rise. 71% lowered profits or absorbed costs, whilst 45% increased prices, and 29% delayed investment.
The FSB has urged the Low Pay Commission (LPC) to 'maintain a firm level of independence', and to ensure that the NLW rate isn't 'dictated by arbitrary political targets'.
'Small businesses continue to be ahead of the curve on pay,' said Mike Cherry, National Chairman of the FSB.
'More than half were paying all staff the current NLW before they were obliged to do so – an even greater proportion were doing so in the smallest firms.
'We're now seeing more small business owners than ever saying that living wage increases are impacting the bottom line. Policymakers of all stripes need to recognise that higher minimum wage rates are not a silver bullet. Ending poverty means taking action on various fronts, not simply burdening smaller businesses with more costs.'