Due to recent legislative changes that have resulted in a sharp increase in operating costs, businesses around the United Kingdom are facing considerable tax-related hurdles. Widespread worries about layoffs, hiring freezes, and economic stagnation are being fueled by a significant increase in the minimum wage and a steep rise in National Insurance tax contributions.
With the UK economy exhibiting little growth in recent months and company confidence falling at the sharpest rate in two years, these difficulties are made worse by broader economic pressures. Employers from all industries caution that the nation’s labor market and general economic health will be greatly impacted by the consequences of these changes.
Tax Increases Hit Businesses Hard
The recent increase in National Insurance contributions from 13.8% to 15% is the biggest worry for businesses. Many firms have found it difficult to cover expenses as a result of this tax load and the 6.7% increase in the minimum wage to £12.21 per hour.
Nick Coburn, managing director of Ulster Carpets Group, which turns over £100m annually, described the situation as a “seismic shock” that mirrors the challenges faced during the 2008 financial crisis. “We had planned to increase our staff by around 30 to 35 people, but we’ve completely culled that idea simply because of the hit from National Insurance” Coburn stated, noting that the changes will cost his business over £2m.
The strain on smaller enterprises is even more pronounced. Mike Burks, managing director of The Gardens Group, which employs 160 people, said the tax increases would erase two-thirds of his company’s profits. “It’s such a dramatic increase in costs, which would serve to wipe out two-thirds of our profit. It’s an impact on a scale that just isn’t easy to comprehend. And I think it’s bound to dampen growth in the whole economy,” he explained. The company has already decided to forgo hiring seasonal workers as a direct consequence of these changes.
Large-scale employers have echoed these concerns. Major UK retailers have issued warnings of “inevitable” job losses, citing their inability to manage the surge in wage bills alongside rising taxes. According to a survey by the British Chambers of Commerce (BCC), three-quarters of companies are under pressure to raise prices to offset higher costs.
Economic Slowdown and Hiring Freezes
The broader economic environment is exacerbating the crisis for employers. The UK economy, which led G7 growth at the start of 2024, has since stagnated, with hiring activity declining sharply. Michael Stull of Manpower noted a 30% year-on-year drop in job postings, describing the labour market’s behaviour as characteristic of a recession.
Recruitment firms are also feeling the pinch. Robert Walters, a leading firm in the sector, reported a 45% drop in fee income from hiring outside London in the last quarter of 2024. Its CEO attributed the decline directly to increased employer costs resulting from the Budget.
Business confidence has reached a two-year low, according to the Institute of Chartered Accountants in England and Wales (ICAEW). Meanwhile, economist Steven Bell warned that the rising tax burden, combined with global economic pressures, could lead to a “mild recession” or worse. “ I think [companies will] hire fewer [people]. They’ll fire more, and some labour-intensive businesses will simply go out of business,” Bell said.
Employers have few options to mitigate the impact. Coburn noted that passing on costs to customers by raising prices was becoming increasingly unviable due to stiff competition from abroad, particularly China. He fears layoffs are now inevitable, with up to 30 jobs at risk at Ulster Carpets Group.
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