National insurance hike triggers redundancies and hiring freeze across hospitality and retail

Rising employer national insurance and payroll costs are forcing small businesses to cut jobs, with one in five already making redundancies and hospitality firms hit hardest. Research shows a £25bn increase in payroll burden is squeezing margins, pushing owners to scale back hiring, reduce hours or switch to freelancers. Many have absorbed costs by cutting their own pay, but that is reaching breaking point. With labour-intensive sectors unable to offset rising taxes, businesses warn the impact will be long term, shrinking workforces, slowing growth and weakening the wider UK economy.

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One in Five small businesses cut staff as tax pressures bite

New research shows 1 in 5 businesses have already made redundancies, with hospitality hit hardest. Rising employer National Insurance up from 13.8% to 15%, plus a lower threshold, has created a £25bn payroll hit for businesses, falling heaviest on labour‑intensive small firms.

Higher payroll costs mean tighter margins. It’s not just the additional wages that bite but the additional resulting National Insurance and pension contributions. As a result, more firms are turning to freelancers or part‑time roles with hospitality and retail facing the biggest squeeze. These are the sectors dominated by small businesses where young people traditionally get their start in the workforce. Many businesses say they’ve “run out of coping strategies”. For many the coping strategy has been to take less of a salary themselves in the hope of coving all the other bills and wages, rather than put up prices and put off customers. That’s not sustainable.

These latest figures come from Rathbones, the wealth and investment management company. They show that more than a third of small hospitality firms reported making redundancies, well above the average across all sectors, and more than two thirds say increased taxation or regulation are the biggest threats to their survival. The £25bn hit on payrolls, through national insurance increases, falls disproportionately on labour-intensive small firms that cannot easily absorb the cost through automation or scale.

A small restaurant employing fifteen people on or around the national living wage will have seen its annual NICs bill rise by several thousand pounds, on top of the minimum wage increase itself. Add business rates, energy costs and food price inflation, and the operating model that worked two years ago may simply no longer be viable. More than half of bosses surveyed said that targeted relief on business rates or employer NICs would help and they could invest and grow.

The danger for the wider economy is that small firms respond to the cost squeeze not by cutting once and recovering, but by permanently downsizing. A business that lays off two people this year and decides not to replace them next year is a business that has quietly accepted a smaller future. Multiply that across hundreds of thousands of firms and the aggregate effect on employment, productivity and growth becomes significant.

For small business owners navigating these pressures, hoping that costs will ease or that relief will arrive in the next Budget is not a strategy. The businesses that come through this period in the best shape will be those that have looked hard at their numbers, made difficult decisions early and found ways to protect the core of their operation, even if that means a leaner version of what they had before.

More than half of SME leaders say targeted relief on business rates or employer NICs would directly support growth. That is not a request for handouts; it is a statement of economic reality from the businesses that employ the majority of the UK workforce. The Government would do well to listen, or it too will be feeling the pinch as tax revenues fall.