Auto-enrolment will impose considerable start-up costs on small businesses, which could affect employee benefits and the cost of goods and services, according to the Federation of Small Businesses.
Giving evidence to the Work and Pensions select committee last week, FSB head of policy Graeme Fisher said a firm with four employees on annual salaries of £25,000 could face an additional cost of £2,500 to get the scheme up and running.
He said: “There will be considerable start-up costs in the first year to implement and get used to the system. This is money firms could use elsewhere, for marketing or business development. We question the impact it will have on wages, prices and other areas.”
Fisher told MPs that the Department for Work and Pensions’ estimates that administrating the scheme will cost firms £46 a year per employee are too low.
He said: “If you assume a wage rate for the administrator of £10 per hour, that would mean roughly 20 minutes a month per employee, which, on the basis of experience with tax returns, seems to be a very low estimate.”
British Chamber of Commerce director general John Longworth said the auto-enrolment rules are “extremely complex and bureaucratic”. He said a survey of 7,000 BCC members found that one in four firms will be put off taking on employees as a result of auto-enrolment.
He said: “If we do not have it in the least bureaucratic form possible it will have the impact of reducing employment as well as possibly choking off economic growth, both of which are very important at the moment.
“Unlike Mervyn King, businesses cannot print money. There is only one pot to pay for everything, so if there is a cost in one place it has to come from somewhere else.”