There is an unprecedented crisis in the UK job market, and early indicators suggest it will only worsen.
There were 63,000 fewer jobs listed in the three months prior to May 2025, yet unemployment rose to 4.6 per cent, the highest it has been in four years, during the same period.
Rising unemployment and a declining job market are bad omens, with many blaming rising employment costs for the lack of new hires, pay rises, and retentions.
Operational costs already weigh heavily on businesses, and employee expenses can add to the struggle.
The Labour Government has pledged not to increase Income Tax or National Insurance Contributions (NICs) for employees and has so far stuck with it.
This has resulted in businesses facing a sharp increase in NICs, an increased National Living Wage, and an increased National Minimum Wage.
Changing thresholds have resulted in most businesses being impacted heavily by the increase in NICs.
As of April 2025, the secondary threshold at which employers begin paying Class 1 NICs dropped from £9,100 to just £5,000 per annum, and the rate of pay rose from 13.8 per cent to 15 per cent.
An increase in the maximum relief offered by Employment Allowance changed from £5,000 to £10,500, which was supposed to offset the rising NIC costs.
However, fiscal drag pulls many businesses over this threshold, resulting in an overall increase to the NIC bill.
In order to successfully navigate the rising employment costs without sacrificing talent or growth, it is necessary to take great care with financial planning.
Where possible, outsourcing work can be a good way of keeping employment costs low as your business can benefit from high-quality, professional work to be completed without incurring the expenses of wages, NICs, pensions, and other associated costs.
If Labour continue to uphold its pledge not to increase the burden on employees then there could be further increases to employment costs later this year or next year.
To brace for these, it is wise for businesses to optimise cash flows and embrace clear financial forecasting.
Consulting with experts for financial support, you can get your business ready for the future.
Your team are key to your business’s success, and we can help you preserve talent while safeguarding growth.
Don’t let rising costs jeopardise your talented team. Speak to us today!
