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Demands of Paying National Living Wage Predicted to Leave Thousands of UK Businesses Struggling

Written by: Keith Tully

Reviewed: Thursday 21st April, 2016

Having to pay staff no less than the new National Living Wage will leave many thousands of British businesses facing the prospect of financial peril.

That’s according to the insolvency specialists of Begbies Traynor, whose research suggests that close to 60,000 UK companies are being forced to pay their staff in line with the government’s new hourly minimum wage levels despite currently being in a far from ideal financial position.

Regulations concerning the National Living Wage, which relate to all British workers aged 25 or over and has resulted in pay rises for thousands of people, came into effect from April 1st 2016.

But Begbies Traynor’s Red Flag Alert research indicates that there could be thousands of employers who find it extremely difficult to balance their books and manage their cash flows as a result of the extra financial burden that the rule changes have introduced.

Businesses in hotel, bar and restaurant, sports and health, wholesaling, high street retail, transport and logistics and food and drug retailing sectors are all expected to be disproportionately impacted by the introduction of the National Living Wage.

Worryingly, the number of companies considered by Begbies Traynor to be in a state of “significant distress” from a financial perspective in these sectors at the end of the first quarter of 2016 was 20 per cent higher than was the case 12 months earlier.

And with their wage-related financial obligations having been increased significantly in recent weeks as a result of the introduction of the National Living Wage, there are fears that scores of UK companies could soon find themselves faced with a highly uncertain future as 2016 unfolds.

With nearly 60,000 low-wage employers starting the new tax 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, a partner at Real Business Rescue; part of the Begbies Traynor Group.

“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,” says Palmer.   

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

 

Keith Tully

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Keith Tully
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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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