Thousands of firms could be wiped out by Living Wage

Thousands of British businesses are struggling to absorb the cost of the new National Living Wage putting their futures at risk.
According to new figures from insolvency firm Begbies Traynor nearly 60,000 UK firms that were forced to implement the National Living Wage on April 1 were already in a “dire financial state” before the scheme was even introduced.
This, says the company, suggests that the UK could see a spate of business failures this year as these companies struggle to absorb the higher staff costs associated with this new regulation.
According to Begbies Red Flag Alert research for the first quarter, which monitors the financial health of UK firms, 59,608 businesses in industries with pa higher number of lower paid or part-time workers ended the period in a state of significant financial distress. That is a 20% increase compared to the same period last year.
This group of “struggling” companies, it said, includes over 4,000 sports and health businesses, 6,000 wholesale outlets, around 3,500 hotels, over 15,000 bars and restaurants, 21,000 retailers, 3,000 transport firms and over 5,000 food and drug retailers.
Begbies pointed to previous Government research which found that employers having to boost the pay of other staff to maintain pay bands following the national living wage could cost them £234.3million in the next 12 months. The British Retail Consortium has said that UK retailers will have to find £3billion a year by 2020 to pay for the increased wage burden associated with the scheme.
“With nearly 60,000 low-wage employers starting the new year in such a dire financial state this doesn’t bode well for their ability to absorb the extra costs that come with the implementation of the new National Living Wage,” said Julie Palmer, partner at Begbies Traynor. “These struggling businesses have already had to take drastic steps to mitigate the immediate cost impacts of the Living Wage on their businesses including reducing overtime and bonuses, staff numbers and passing on the higher costs to customers. My concern is that as more of the hidden costs begin to emerge many companies could find themselves stretched to breaking point.”