More than 20,000 retailers that had to implement the national living wage on April 1 are already suffering “significant financial distress”, research from insolvency firm Begbies Traynor has shown.
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The firm said 21,129 retailers ended the first quarter of 2016 in a state of financial distress, up 18% compared with the same period last year, in its Red Flag Alert research, which monitors the financial health of UK companies.
“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,” said Julie Palmer, partner at Begbies Traynor.
“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.”
She added: “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.”