Small businesses in financial distress as a result of National Living Wage

Nearly 100,000 businesses forced to implement the National Living Wage six months ago in April 2016 are now in a state of financial distress, as they struggle to absorb the higher staff costs associated with the new regulation.

Many businesses are struggling to make the numbers add up following the National Living Wage

Many businesses are struggling to make the numbers add up following the National Living Wage

According to research from insolvency firm Begbies Traynor, on October 1 2016 there were 97,342 businesses experiencing financial distress within the sectors most impacted by the National Living Wage; a 23 per cent increase compared to six months earlier when the regulation was first introduced (78,917 businesses as of April 1 2016).

This figure includes 33,835 retailers, 13,772 wholesale outlets, 13,071 transportation and logistics firms, 10,809 bar and restaurants, 10,019 food and drug retailers, 7,803 food and beverage retailers, 5,406 sports and health clubs and 3,347 hotels; all of which have experienced a drastic spike in corporate distress over the past six months.

The situation looks set to deteriorate still further for these ailing businesses, as the government appears intent on pushing ahead with its plans to increase the National Living Wage to £9 an hour by 2020, Begbies Traynor says.

Partner at the firm Julie Palmer adds that, following recent reports that Brexit has so far had a minimal impact on the UK economy, the data clearly indicates a strong link between rising levels of business distress and the implementation of the National Living Wage six months ago, with an additional 18,000 companies demonstrating troubling signs of insecurity over that period.

‘My concern is that many of these struggling businesses may now be forced to take more drastic measures to manage their growing cost base, such as further cuts to staff numbers, reducing bonuses or even passing on the increased costs to the end consumer.

For growing numbers of low wage employers in these sectors, the future looks decidedly uncertain,’ she continues.

‘All eyes will now be firmly fixed on the Autumn Statement to see whether the new Conservative leadership will stay committed to George Osborne’s original National Living Wage policy or whether, in a post-Brexit world, the government’s priorities have shifted.’

Further reading on National Living Wage

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