'Vast majority' of employers should be able to afford National Living Wage
One in four workers will get a pay rise from next year's new National Living Wage, but the total wage bill will only increase by 0.2%, according to a new report.
The Resolution Foundation said the impact of the new £7.20 an hour rate will be felt most in hospitality, retail and support services.
The country's wage bill will rise by 0.6%, or £4.5 billion in 2020 when the new rate is expected to be over £9 an hour, said the think tank.
Employers in sectors such as education, health, manufacturing and construction will not see a major increase in costs, although social care firms will face "significant challenges", said the report.
The foundation said it was not clear how businesses in the most affected areas will respond to the higher wage in terms of jobs.
Conor D'Arcy, policy analyst at the Resolution Foundation, said: "The National Living Wage will give a welcome wage boost to six million workers. Pay rises don't come for free, and the expected rise will take the wage floor into uncharted territory.
"But with the economy getting stronger the vast majority of employers should be able to afford the new higher wage floor, which will allow their lowest-paid staff to share in the recovery.
"Past warnings about the negative effects of the minimum wage on employment have been wide of the mark, but the size of the increase in the new wage floor will certainly be challenging in sectors such as hospitality, retail and care.
"It's not yet clear how employers will respond but, while some may opt to reduce hours or new hires, past experience tells us that most absorb the pressures via some combination of small increases in prices, a dip in profits and productivity gains.
"Having announced the new National Living Wage as a Summer Budget surprise, the government must now set out a detailed plan for implementation.
"With the Low Pay Commission playing such a critical role in ensuring the success of the minimum wage over the past 16 years, the Chancellor must ensure it continues to steward the UK's ambitious new wage floor."
A Business Department spokesman said: "As the report notes, the economy is getting stronger and Government believes that Britain deserves a pay rise. The National Living Wage is an essential part of moving to a higher wage, lower tax and lower welfare society."