Rising employment costs are putting increasing pressure on UK businesses. Recent changes to National Insurance (NI) contributions and the National Living Wage (NLW) have significantly raised payroll expenses, and the effects are already being felt across multiple sectors.
Here’s what the data is telling us:
Hiring slowdown and redundancies
The Chartered Institute of Personnel and Development (CIPD) reported on 12th May 2025 that employer hiring expectations have dropped to their lowest non-pandemic level since 2014. Nearly a quarter of employers anticipate making redundancies in the coming months, with large private-sector businesses and retailers most affected.
Youth employment impact
The Institute for Fiscal Studies (IFS) reported in April 2025 that the combined effect of minimum wage and tax increases may reduce opportunities for young people. The cost of employing workers aged 18–20 has risen significantly, leading some firms to reduce hiring or lay off younger staff.
Business distress
A "Red Flag Alert" report from Begbies Traynor reveals that 45,416 UK businesses are in critical financial distress as of 31st March 2025 - a 13.1% increase from Q1 2024. Rising costs from tax hikes, increased NI contributions, and minimum wage changes are given as the primary factors.
With margins being squeezed, many businesses will need to reassess their pricing structures or reduce operational costs, strategies that can take time to implement.
In the short term, however, businesses facing immediate cash flow gaps may need to explore funding options to bridge the gap.
Here are some funding solutions to consider:
While short term funding can help plug immediate cash flow gaps, rising employment costs may require longer term adjustments to your business model. This could include reviewing pricing strategies, streamlining operations, or investing in automation to offset wage increases.
By taking action early and securing additional working capital where needed, businesses can avoid short-term issues from escalating into a more serious financial crisis.
Need support with business funding? Contact us to explore the best options for your company.