Wages rise in attempt to attract staff  

UK small business wages have risen to their highest level since May 2022 as many firms battle to attract and retain employees in a competitive market, according to the latest data from global small business platform Xero. Xero’s Small Business Index, based on anonymised and aggregated data from hundreds of thousands of small businesses, rose by seven points in January to 89 points. This was driven by a boost in wages, stronger sales revenue and a smaller decline in jobs.

Small business salaries rose 4.8 percent y/y in January – equal to the record high for this series recorded in May 2022. This is mirrored in the latest ONS earnings figures, where regular pay (6.7 percent y/y) showed the strongest growth rate seen outside of the pandemic. All industries saw an uptick in wage growth, but the largest was in the information, media and telecommunications (+5.9 percent y/y) sector. The smallest wage rises were in rental, hiring and real estate (+3.8 percent y/y).

Alex von Schirmeister, UK Managing Director, Xero, said: “Despite increasing wages and some improvement in employment levels, we know that small businesses are still struggling to find the workers they need. National vacancy levels have softened but are still high by historical standards. This is forcing many business owners to offer larger pay rises to keep or attract new staff.”

Employment shows early signs of recovery

Rising wages could be having an impact on the job market and retention. While the number of people employed by small businesses declined 2.5 percent y/y – the tenth consecutive month of year-on-year jobs decline – it was the smallest drop since April 2022.

London is leading the jobs recovery as the only region employing more staff than a year ago (+2.2 percent y/y). However, traditionally large employing industries like manufacturing (-6.1 percent y/y) and hospitality (-5.8 percent y/y) are lagging and employing far fewer people than they were a year ago.

Small businesses waiting longer to be paid 

Late payments continue to get worse for small businesses already struggling. Time to be paid rose by 0.6 days to 30.5 days in January, the longest payment time recorded since September 2020. In January, payments to UK small businesses were also late by an average of 8.4 days, a significant rise of 1.8 days since December 2022, and the highest level since August 2020.

“It’s unacceptable that payment times to small businesses continue to rise,” continued von Schirmeister. “The outcome of the UK government’s late payments consultation cannot come soon enough – small businesses are critical to our economy and communities, but can’t drive UK growth without stricter policies to protect them.”

Sales revenue rises but volume falls

Elsewhere, sales revenue in January rose 5.1 percent y/y, after a difficult Christmas trading period, with just a 2.7 percent rise in December. Hospitality (+9.2 percent y/y) and construction (+9.7 percent y/y) saw large positive sales growth in January.

When taking the impact of inflation into account using the CPIH in December (9.2 percent y/y) and January (8.8 percent y/y) as a proxy for price rises, sales volumes fell 6.5 percent y/y in December and 3.7 percent y/y in January.

The Xero Small Business Index is part of the Xero Small Business Insights programme. To download the full January results, go to the Xero Small Business Insights website. To find out more about how the Index is constructed, see the methodology.