Living Wage leads thousands of firms to struggle

By Michelle Perrett

- Last updated on GMT

The National Living Wage was causing problems for thousands of businesses: Begbies Traynor
The National Living Wage was causing problems for thousands of businesses: Begbies Traynor

Related tags: Sisters food group, Term, Economics

Thousands of businesses are struggling to absorb the impact of the new National Living Wage (NLW), insolvency firm Begbies Traynor has warned.  

The news comes after two leading food manufacturers, 2 Sisters Food Group and Samworth Brothers, recently found themselves at the centre of rows over the NLW with unions.

According to the Bakers, Food and Allied Workers Union, 2 Sisters told staff​ at its Pennine Foods site in Sheffield and the Fox’s Biscuit in Batley, that it planned to cut Sunday and Bank Holiday pay, overtime and time off in lieu for working unsociable hours. 

Similar accusations were levelled at Samworth Brothers​ as Channel 4 claimed it had seen documents confirming cuts to pay and conditions in the wake of the NLW.  

Both manufacturers denied the claims.

The compulsory NLW came into force on April 1 and means that employers must pay staff over the age of 25 at least £7.20 an hour. Those aged between 21 and 24 continue to receive £6.70 an hour.

60,000 companies

Begbies Traynor revealed that nearly 60,000 UK companies that were forced to implement the NLW were already in a dire financial state.

It suggested that the UK could see a spate of business failures in 2016, as these companies struggled to absorb the higher staff costs associated with this new regulation. The consultancy made it clear the comments referred to businesses in general.

Begbies Traynor’s Red Flag Alert research for the first quarter of 2016, which monitors the financial health of UK companies, found 59,608 businesses in the industries most impacted by the NLW ended the first quarter of 2016 in a state of ‘significant’ financial distress. This was a 20% increase compared with the same period last year.

Of those companies struggling, a number were in the food supply chain, with 6,010 wholesale outlets, 3,178 industrial transportation and logistics firms and 5,448 food and drug retailers.  

‘Take drastic steps’

Speaking about manufacturers in general and not food and drink manufacturers, Julie Palmer, partner at Begbies Traynor, said: “These struggling businesses have already had to take drastic steps to mitigate the immediate cost impacts of the NLW 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.

“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.

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

Meanwhile, earlier this week, Begbies Traynor warned that 21,061 manufacturers – including food and drink producers – that relied on exports would be hit heavily​ by a decision to quit the EU in the referendum on June 23.  

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