The £25 billion payroll shock: how much more businesses are paying.
Key Stats: The Office for Budget Responsibility sees a 2% hike in payroll costs for employers⁹. This means employers will pay an extra £937.80 per employee on average earnings¹⁰.
For a typical UK business, National Insurance for an employee earning £36,000 rose from £3,712 in 2024 to £4,650 in 2025³, a 25.3% increase.
For minimum wage workers, the impact is even greater. Employers’ NICs will rise from £1,617 to £2,583¹¹, making 2025 the costliest year for minimum wage workers¹².
Business confidence crashes to worse-than-pandemic levels.
Key Stats: CEO confidence in Britain fell to minus 72 in July 2025, worse than minus 69 during the COVID lockdown. This is the lowest score since 2016¹³.
82% of firms say the National Insurance rise will affect their business⁴. 79% believe the government hasn’t assessed the policy impact¹⁴. This shows a significant drop in business confidence.
Concerns are evident in forward-looking metrics: 76% of UK businesses list economic conditions as their main worry¹⁵. 77% feel policy changes are happening too quickly¹⁶.
The Great Hiring Freeze: 32% of Businesses Slash Recruitment
Key Stats: 32% of businesses plan to cut jobs or hire fewer workers⁸. The Net Employment Balance fell from +21 to +13 this quarter.
Some sectors show sharp declines in hiring: Retail dropped from +23 to +1, hospitality from +18 to +7, and construction from +43 to +27¹⁷.
Now, 16% of employers expect staff cuts in the next three months, up from 11% last quarter¹⁹. 25% plan redundancies before March 2025⁶.
The £400,000 Reality Check: Real Business Impact Stories
Key Stats: Real businesses face steep cost increases. One company reported a £400,000 rise in its wage bill, leading to potential job cuts²⁰.
Reece Donnelly from Theatre School of Scotland said the NIC increase will add £60,000 to staff costs, leading to higher prices and delays in hiring²¹.
For larger businesses, costs can hit six or seven figures. This is common in retail and hospitality²².
Sector Meltdown: Hospitality and Retail Bear the Brunt
Key Stats: 209 pubs closed permanently in the first half of 2023, about eight a week. The South East had the most closures²³.
UKHospitality estimates that 89,000 hospitality jobs have disappeared since the Autumn Budget. This accounts for over half of all redundancies²⁴.
The sector is hit by a “perfect storm.” National insurance hikes, higher business rates, and rising minimum wages add pressure²⁵.
The Employment Allowance Lifeline: Winners and Losers
Key Stats: The Employment Allowance increased from £5,000 to £10,500. The £100,000 cap is gone, so most employers can now claim relief⁵.
However, the threshold dropped from £9,100 to £5,000, meaning employers now pay NIC on £4,100 more per employee².
This is their first National Insurance duty for small businesses if employees earn less than £9,100²⁶.
The Automation Acceleration: Technology as the New Workforce
Key Stats:
SMEs are looking for technological solutions. Emma Cromarty said that companies are looking for ways to cut costs with technology²⁸.
This pressure is pushing businesses to use automation and AI. This shift could lead to more job losses.
The Apprenticeship Paradox: Skills Levy Reform Amid an Employment Crisis
Key Stats: The Apprenticeship Levy is 0.5% for businesses with payrolls over £3 million²⁹. There is a £15,000 annual allowance. It will reform into the “Growth and Skills Levy” from April 2025³⁰.
The apprentice minimum wage rose from £6.40 to £7.55³¹, adding to cost pressures. Non-levy employers still pay only 5% of apprenticeship training costs³².
The Regional Divide: Where Business Pain Hits Hardest
Key Stats: As of late August 2025, 48% of businesses with 10 or more employees saw staffing costs rise, up 12 percentage points from August 2024³³.
Regional differences are evident. The South East saw the most pub closures²³. Also, 32% of UK businesses are concerned about supply chain issues³⁴.
The Price Pass-Through Effect: Who Pays in the End
Key Stats: The OBR predicts firms will pass on 60% of the higher costs. Workers and consumers will face lower wages and higher prices. Firms will absorb 40% through reduced profits⁹.
Research shows that 26% of SMEs plan to cut pay raises and bonuses. Also, 12% will reduce employee benefits or lay off workers³⁵.
The OBR expects this will add 0.2% to CPI inflation³⁶.
Looking Forward: The Long-Term Business Landscape
Key Stats: The Secondary Threshold of £5,000 will remain unchanged until 2028. After that, it will increase with CPI, providing some certainty for the future³⁷.
77% of businesses worry about the pace of policy changes. Experts suggest focusing on long-term workforce planning instead of quick cost-cutting³⁸.
Evidence shows that 2025 will bring a significant change in UK employment economics. This will affect business models and workforce strategies.
Sources and References
- CIPP – Employer’s National Insurance Increases for 2025
- GOV.UK – Changes to National Insurance Contributions 2025
- Lockton – UK Employers’ National Insurance Costs Increase
- British Chambers of Commerce – National Insurance Creating ‘Powder Keg of Costs’
- GOV.UK – Rates and Thresholds for Employers 2025 to 2026
- CIPD – Looming National Insurance Changes Prompt Widespread Plans
- Bloomberg – British CEOs More Downbeat About UK Economy Than During Covid
- People Management – Employers Face Biggest Redundancy Surge in a Decade
- Sage Advice UK – Employers’ National Insurance: How 2025 Rise Affects Businesses
- Institute for Fiscal Studies – Increase in Employer National Insurance Contributions
- Centre for Policy Studies analysis (referenced in Sage Advice UK article)
- Centre for Policy Studies – Most Expensive Year for Minimum Wage Employers (referenced in Sage Advice)
- IoD Press Release – Business Confidence Picks Up Slightly
- British Chambers of Commerce Survey Results (referenced in source 4)
- Institute of Directors Economic Confidence Survey (referenced in source 13)
- British Chambers of Commerce Policy Survey (referenced in source 4)
- CIPD Labour Market Outlook Q1 2025 (referenced in source 6)
- CIPD Sector-Specific Employment Confidence Data (referenced in source 6)
- CIPD Employment Expectations Survey (referenced in source 6)
- Alexander & Co Chartered Accountants case study (referenced in Sage Advice source 9)
- Theatre School of Scotland case study (referenced in Sage Advice source 9)
- MHR – Your Guide to 2025 National Insurance Rate Changes
- GB News – Over 200 Pub Closures in 2025
- Insurance Business UK – Pub Closures Mount
- Forbes Burton – UK’s Distressed Businesses List 2024
- SRG – Navigating the National Insurance Increase in 2025
- CIPD Business Response Survey (referenced in source 6)
- Sage Advice UK – Emma Cromarty HR Consultant Quote
- GOV.UK – Pay Apprenticeship Levy
- Ascento – What Employers Need to Know About 2025 Growth and Skills Levy
- British Business Bank – National Living Wage and National Minimum Wage
- GOV.UK – Funding an Apprenticeship for Non Levy Employers
- ONS – Economic Activity and Social Change in the UK
- Forbes Network – UK Business News: Growth, Challenges, and Future Outlook
- MoneyWeek – What Has Changed with Employers’ National Insurance
- Office for Budget Responsibility Economic and Fiscal Outlook October 2024 (referenced in source 2)
- GOV.UK National Insurance Policy Documentation (referenced in source 2)
- Hamilton Nash and AdviserPlus Commentary (referenced in People Management source 8)
