National Living Wage Placing Financial Strain on 60,000 Businesses

UK could see a number of business failures as companies struggle to absorb higher staff costs on back of new regulation

National Living Wage Placing Financial Strain on 60,000 Businesses

Almost 60,000 UK companies that had to introduce the National Living Wage (NLW) on April 1 were already in a “dire” financial state before the new regulation was introduced, research from insolvency firm Begbies Traynor has reported.

The new NLW requirement sets a higher minimum income level for employees aged over 25, now set at £7.20 an hour.

According to its Red Flag research, 59,608 businesses in industries most impacted by the new NLW – predominantly those in retail and leisure – ended the first quarter of 2016 in “significant financial distress”; a 20% increase on the same period last year.

Begbies Traynor have warned that the date could indicate a rise in business closures over the coming months as companies struggle to afford the higher staff costs associated with the new NLW.

The data follows comments from The British Retail Consortium Lobby which suggested that the NLW will cost UK retailers £3bn a year by 2020. And in October last year, the Federation of Small Businesses warned that new NLW would “harm” businesses.

Julie Palmer, partner at Begbies Traynor, said the research “didn’t bode well” for the implementation of the new NLW:

“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, passing on the higher costs to customers through inflated prices, reducing staff numbers and in many cases, cutting the pay of workers under 25. However these severe measures, while effective in the short term, are unappealing for customers, staff and the businesses themselves and unfortunately do not offer a long term solution to the problem.”

“My concern is that, as more of the hidden costs begin to emerge, many companies could find themselves stretched to breaking point.”

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