Rising employment costs are putting increasing pressure on UK businesses. Recent changes to National Insurance (NI) contributions and the National Living Wage (NLW) have significantly increased payroll expenses, with the effects already being felt across multiple sectors.

What the data shows

Hiring slowdown and redundancies

On 12^th May 2025, the Chartered Institute of Personnel and Development (CIPD) reported that employer hiring expectations have fallen to their lowest non-pandemic level since 2014. Almost one in four employers expect to make redundancies in the coming months, with large private-sector businesses and retailers most affected.

Impact on youth employment

The Institute for Fiscal Studies (IFS) highlighted in April 2025 that the combined effect of higher minimum wage rates and tax increases could reduce opportunities for younger workers. The cost of employing staff aged 18–20 has risen significantly, leading some businesses to reduce hiring or lay off younger staff.

Business distress on the rise

According to Begbies Traynor’s ‘Red Flag Alert’ report, 45,416 UK businesses were in critical financial distress as of 31 March 2025 – a 13.1% increase compared with Q1 2024. Rising costs from tax hikes, increased NI contributions, and minimum wage changes are given as the primary factors.

Bridging the gap: funding solutions

With margins being squeezed, many businesses are reassessing pricing strategies or reducing operational costs. But these longer-term changes take time to implement. For those facing more immediate cash flow pressures, short-term funding can provide a lifeline.

Here are four funding options to consider:

Working capital loans
Designed to cover day-to-day expenses, these loans can be arranged quickly and provide an immediate cash flow boost.
Invoice finance
If you trade with other businesses, invoice finance allows you to release cash tied up in unpaid invoices. You can choose to fund all invoices or select specific ones, providing flexibility.
Asset-backed funding
For companies who own property, equipment, or other assets that are not currently financed, they might be able to unlock capital through a sale and leaseback arrangement or a commercial mortg age. These take longer to arrange due to valuation requirements, but often come with lower interest rates than short-term lending.
Pre-approved funding
Through platforms such as Capitalise, businesses can securely connect their bank accounts and receive pre-approved funding offers in minutes. This makes it easier to compare flexible options from multiple lenders, making the process simple, quick, and hassle-free.

Planning for the longer term

While short-term funding can relieve immediate pressure, rising employment costs may require deeper structural changes. This could mean:

Reviewing and adjusting pricing strategies
Streamlining operations to improve efficiency
Exploring automation or technology to offset wage increases

Taking action early and securing additional working capital where needed, businesses can avoid short-term cash flow challenges from escalating into more serious financial difficulties.

Need support with business funding? Contact us at 01904 655202 to explore the best options for your company.