A new survey has revealed that UK businesses are planning job cuts and price increases ahead of the upcoming National Insurance and minimum wage hikes set to take effect in April.
According to research by the Chartered Institute of Personnel and Development (CIPD), more than a third of firms are looking to reduce staff numbers through redundancies or lower recruitment, while 42% plan to raise prices to offset the rising employment costs.
Employers Respond to Rising Costs
The increases in National Insurance Contributions (NICs) for employers and the National Minimum Wage, announced in October’s Budget, are expected to impact a wide range of businesses, particularly in retail and hospitality.
CIPD’s chief executive, Peter Cheese, described this as one of the most significant downturns in employer confidence in a decade, outside of the COVID-19 pandemic.
“It’s the everyday economy sectors, such as retail and hospitality, which employ large numbers of people, that will be particularly affected by impending increases to employment costs,” he said.
Small Business Confidence at a 10-Year Low
Separate research from the Federation of Small Businesses (FSB) found that confidence among small firms dropped to its lowest point in a decade, excluding the pandemic period.
The FSB’s small business index indicates that many firms are bracing for a contraction in the first quarter of 2025, as rising costs continue to weigh on growth.
This adds to growing concerns from businesses across the UK, with industry groups such as the British Chambers of Commerce (BCC) warning that business confidence has slumped to its lowest level in two years.
Big Retailers Warn of Job Losses and Higher Prices
In November, some of the UK’s largest retailers warned that job losses, higher prices, and shop closures were inevitable due to the rising tax burden and other cost pressures.
However, some argue that major retailers can afford the increase. Next, for example, made over £1 billion in profit last year and is expected to report similar earnings this year. Next’s CEO, Lord Wolfson, acknowledged that companies like his are among the “broad shoulders” expected to bear the tax burden.
Government Defends Tax Rises Amid Political Backlash
From April, employers will see an increase in National Insurance payments from 13.8% on salaries above £9,100 to 15% on salaries above £5,000. The government has justified the rise as essential to fund public services and fix the country’s financial deficit.
Chancellor Rachel Reeves defended the decision, calling it “a necessary step for long-term economic stability”. She acknowledged the difficulty of the move but insisted it was “the right decision in the national interest.”
Opposition parties, however, argue that the increased costs will slow economic growth and reduce job creation.
UK Unemployment Rate Creeping Up
The latest figures from the Office for National Statistics (ONS) show that UK unemployment rose slightly to 4.4% between October and December 2024.
More up-to-date employment data is set to be released on Tuesday, but the ONS has urged caution in interpreting recent figures, citing low response rates in employment surveys.
Inflation Concerns Add to Economic Uncertainty
With businesses planning to increase prices to compensate for rising employment costs, there are fears that this could contribute to inflationary pressures in the coming months.
In December 2024, inflation stood at 2.5%, still above the Bank of England’s 2% target. The Bank has warned that inflation could spike at 3.7% later this year before gradually declining.
However, Bank of England Governor Andrew Bailey recently reassured businesses that the overall trend remains one of “gradual disinflation.”
As firms navigate these economic shifts, the coming months will be crucial in determining how businesses and the job market adjust to the government’s new tax and wage policies.
