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Thousands of firms 'could go bust due to cost of living wage'

Published 20/04/2016

The British Retail Consortium has previously said that retailers will have to find £3 billion a year by 2020 to pay for the living wage
The British Retail Consortium has previously said that retailers will have to find £3 billion a year by 2020 to pay for the living wage

Thousands of businesses are at risk of going bust as a result of having to pay the national living wage to employees, according to insolvency experts.

Data from Begbies Traynor shows that 60,000 companies were already in a "dire financial state" before the scheme was introduced, and the added cost could push many over the edge.

Julie Palmer, partner at Begbies Traynor, said: "Sectors that traditionally pay low salaries are most at risk, and I wouldn't be surprised if at least 15,000 firms from that basket go out of business as a result of the added cost."

She added that many businesses had already taken steps to mitigate the immediate cost impacts of the living wage, such as reducing overtime and bonuses, passing on the higher costs to customers, reducing staff numbers and cutting the pay of workers under 25.

Earlier this month, sandwich chain Eat came under fire after it stopped paying staff for lunch breaks to fund the living wage. A spate of other retailers are thought to be considering similar measures.

Ms Palmer said: "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.

"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."

Sectors most at risk include hotels, care homes and retailers.

The British Retail Consortium has previously said that retailers will have to find £3 billion a year by 2020 to pay for the increased wage burden.

A Department for Business spokesman said: "The Government is committed to ensuring that the new national living wage works for businesses of all sizes.

"To help with the transition we are reducing taxes and employer national insurance contributions by over £3 billion a year in total by 2020 through changes to the employment allowance and lowering corporation tax to 17%. These measures will benefit over a million businesses."

He added that business rates reforms would also ease the burden on small businesses.

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