National living wage pushes tens of thousands of companies into financial distress

Helen Cahill
Follow Helen
Conservative Party Conference Held In Birmingham - Day 2
The national living wage was brought in by George Osborne (Source: Getty)

Nearly 100,000 businesses have been pushed into financial distress due to the introduction of the national living wage six months ago.

According to data from insolvency firm Begbies Traynor, 97,342 firms impacted by the introduction of the national living wage are now struggling financially, an increase of 23 per cent since the legislation came into effect.

Read more: M&S boss Steve Rowe declines to meet MPs to discuss pay cuts for his staff

More than a third of the struggling businesses were retailers, with 33,835 businesses in this sector showing signs of distress. This compares to 13,772 wholesale outlets, 13,071 transport companies and 10,809 bars and restaurants.

Julie Palmer, partner at Begbies Traynor, said this could lead to an extra 5,000 insolvencies a year if the increased distress leads to a proportional increase in business failures.

"There's been a stark movement in the number of businesses showing signs of distress," Palmer said. "We think it's inevitable that that will come through in terms of business failures."

Read more: M&S workers seek unionisation after pay changes and job cuts

Low-margin sectors, such as retail, will be hit hardest, she said, which may lead to cutting staff numbers or passing on costs to consumers.

Retailers may also cut bonuses and benefits for staff.

"M&S are a giant in the retail space, and they've been taking these measures," Palmer said. "And John Lewis and Next have posted disappointing results recently so we will see more and more of those steps coming up."

The pressure on retailers will increase when the national living wage rises to £9 an hour by 2020.

M&S have been responding to the changes by cutting premium pay on Sundays and Bank Holidays, and have been accused of threatening to sack staff who do not agree with the changes.