Almost 60,000 companies in the UK were in a “dire” financial state when the new national living wage was implemented on 1 April, according to Begbies Traynor.
The insolvency firm predicted a spate of business failures this year as a result of the new law as businesses absorb higher staff costs.
Begbies red flag research for Q1 found that 59,608 businesses in the industries most impacted by the NLW ended the quarter in a state of ‘significant’ financial distress – a 20% increase compared to the same period last year.
The group of struggling companies included 4,638 sports and health businesses, 6,010 wholesale outlets, 3,540 hotels, 15,665 bar and restaurants, 21,129 retailers, 3,178 industrial transportation and logistics firms and 5,448 food and drug retailers.
The research follows the British Retail Consortium’s warning earlier this year that UK retailers will have to find an extra £3bn a year by 2020 to pay for the increased wage.
Begbies partner Julie Palmer said: “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.
“What’s more, the latest economic projections predict that the long term costs of the new scheme could be in the billions, which is an extremely worrying prospect for the thousands of UK employers affected by the change. 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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