Most UK employers are not facing one cost increase. They are facing several, arriving on different dates, with limited ability to pass them on. The sensible response starts with knowing where the pressure actually comes from.
The main changes employers have to absorb
- Employer National Insurance. From April 2025 the employer rate rose to 15% and the earnings threshold at which employers start paying fell from £9,100 to £5,000 per employee. The Employment Allowance, which reduces a small employer’s bill, was increased to £10,500 and extended to more businesses.
- The National Living Wage. It rose to £12.71 an hour from 1 April 2026, which also lifts pay differentials further up a pay scale.
- Statutory Sick Pay. From April 2026 SSP is payable from the first day of sickness with no lower earnings threshold, at £123.25 a week. That changes the cost of short absences for employers who previously paid nothing for the first three days.
- Business rates. A new rating revaluation and revised multipliers took effect from April 2026, with different treatment for retail, hospitality and leisure properties. The result depends on the property, so it is worth checking the rateable value and any relief.
- Energy. The Ofgem price cap applies to households, not businesses. Business customers rely on their supplier contracts, so timing of renewals matters.
These costs hit labour-intensive firms hardest, which is why hospitality, retail, care and small professional services appear often in business surveys on the subject.
What businesses are actually doing
Raising prices. The cleanest response, but constrained by competition and by customers who also face pressure. Firms with differentiated products or contracts that allow indexation have an easier time. For others, selective increases, such as on the lowest-margin lines, are more realistic than across-the-board rises.
Changing hours or roles. Some employers reduce hours, change shift patterns or make fewer hires. This protects margins but may hit service quality, and the savings can be partly offset by higher costs of recruitment and training if staff leave.
Renegotiating suppliers and contracts. Reviewing energy, insurance, software, and rent at renewal dates is often the least painful saving, particularly where costs have crept up through automatic renewals.
Investing in efficiency. Automation or better software can lower unit costs, but it usually costs cash up front, so it works best for firms with the working capital to wait for the payback.
Absorbing the cost temporarily. Some firms simply accept lower margins, hoping conditions ease. That is a valid choice for a defined period, but it needs a limit, because margin erosion that is allowed to run on becomes a survival problem.
A way to decide
A practical approach is to cost each change in pounds per year, not as a headline percentage:
- Calculate the extra annual cost of each change for your actual payroll and premises.
- Work out the price rise, in pence per sale, that would cover it.
- Test that against what customers would tolerate and what competitors are charging.
- Treat what remains as the saving or efficiency target.
This turns a vague squeeze into a specific number, and it shows which lever matters most. Often, one cost line accounts for most of the pressure.
Cash is where cost pressure bites first
Even when profit survives, higher bills and tight margins reduce the cushion in the bank. Why growing businesses still run out of cash looks at how timing differences, and the tax dates that do not move, turn a manageable cost increase into a liquidity problem.
This is general information, not financial, tax or legal advice. Thresholds, rates and reliefs change; check current rules on GOV.UK or with an accountant.
Sources: GOV.UK guidance on employer National Insurance, the Employment Allowance, the National Minimum Wage and National Living Wage, and Statutory Sick Pay; Valuation Office Agency and GOV.UK guidance on business rates; Ofgem information on the energy price cap.
