Wednesday 4 May 2016 3:16 pm

National Living Wage to cost businesses £11bn by 2020, report warns

Businesses will have to stump up much as £11bn in extra wage costs over the next four years to meet the chancellor's National Living Wage (NLW) target of £9 per hour, new research has warned. 

The report, by property firm Bilfinger GVA, estimates that the new hourly rate of £7.20 per hour for over 25 year olds will cost businesses around £2.1bn this year.

But once established, costs could then reach anything between £7bn and £11bn by 2020 as the minimum wage rises to £9 per hour, with hotel, retail, leisure and healthcare sectors taking a £6bn hit.

Around five million employees earn less than £9 per hour according to current estimates, Bilfinger GVA said, which is equivalent to 30 per cent of all UK employees.

Read More: The National Living Wage is a ticking timebomb

The National Living Wage was introduced by George Osborne in April, replacing the previous rate of £6.20 per house and resulting in a pay rise for around 1.8 private sector employees. 

The extra cost has put particular pressure on the retail, leisure, automotive hotel and healthcare sectors, which together accounted for around 91 per cent of the UK's workforce that were previously on less than the new living wage – of which around 60 per cent were employed by food and drink companies. 

Last month, Begbies Traynor, the restructuring specialist warned that for thousands of vulnerable companies, implementing that wage rise will be especially tough, with around 60,000 businesses recorded to be in "significant" financial distress in the first quarter.

Read More: The National Living Wage is having an unexpected effect on salaries

Gavin Brent, managing director in retail, hotels and leisure at Bilfinger GVA said: “The national living wage is likely to impact significantly on the leisure and hospitality industry because of the number of people affected."

"The importance of payroll to the profit and loss in these sectors will directly affect the values of these types of property. As such, increased wage costs will either incur a reduction in head count or improvement inefficiencies elsewhere in order for the business to maintain the same margin, thereby placing a greater burden on the industry.”