EMPLOYERS in Cumbria are predicting that jobs and investment will be hit as a result of the National Living Wage, which comes into force today.

It replaces the National Living Wage for employees over 25.

They must be paid at least £7.20 an hour, an increase of 50p, but Chancellor George Osborne has indicated this will rise to £9 by 2020.

Announcing the measure last summer, he predicted it would have only a “fractional” effect on jobs and said the cost to employers would be offset by cuts to National Insurance and Corporation Tax.

But Rob Johnston, chief executive of Cumbria Chamber of Commerce, believes it will be damaging, particularly in the hospitality and care sectors, and in retail where margins are already under pressure.

He said: “This is an example of state intervention that isn’t needed and isn’t helpful. It hits that part of the labour market that allows a lot of people entry into work who otherwise wouldn’t be employed.

“Employers may take the view that they won’t employ that extra person. It will remove choice and remove opportunity.”

He is also concerned that money will be diverted away from investment that would improve productivit.

Mr Johnston added: “All costs are taken into account when a business is considering investment. If you have by law to pay higher salaries, it could impact on investment.”

Research published this week by the Resolution Foundation suggests one-in-three workers in some parts of the country will receive a pay rise and that employers will see “significant” increases in their wage bills.

Around two million workers should get a pay rise immediately but, the foundation argues, the total will rise to four and a half milliom as those earning above the new minimum demand pay increases to maintain differentials.

Julie Campbell, payroll manager with the Cumbrian accountant Dodd & Co, believes many small businesses in the county will be hit.

She said: “It’s going to have a major impact and it comes on top of the costs of auto-enrolment, which requires employers to set up and pay into workforce pension schemes. It’s a burden for businesses and a lot are saying, ‘I’m not going to take on employees’.

“Employers will have to increase pay rates though, because HM Revenue and Customs will be hitting people with fines if they don’t pay.”

The Joseph Rowntree Foundation has long advocated a Living Wage as the level of income needed to sustain an adequate standard of living.

It estimates this at £8.25 an hour outside London, more than £1 more than the Government’s National Living Wage. Accountancy giant KMPG says that 53,000 people in Cumbria – 27 per cent of the workforce – earn less than this.

Allerdale has the highest proportion of workers paid less, 33 per cent, followed by Eden and South Lakeland (31 cent), Carlisle (28 per cent), Barrow (26 per cent) and Copeland (11 per cent).

The specialist property adviser Christie + Co recently commissioned research to assess the impact of the National Living Wage.

It found that, across all sectors of the UK economy, 23 per cent of employees will receive a pay rise by 2020.