As we move into 2025, UK businesses are bracing themselves for a turbulent year ahead. A recent report from Peninsula Group’s Employer Confidence Index paints a bleak picture, with many business owners fearing for their survival. According to the survey, a staggering 83% of businesses are worried about rising costs, and over two-thirds have flagged payroll costs as a major concern. The national conversation around inflation and economic stability continues to weigh heavily on companies across all sectors, leaving many wondering what the future holds.
The strain of rising costs and legislation changes
One of the most pressing concerns for UK businesses in 2025 is the sharp increase in costs. Since Labour came into power in July, the nation’s GDP has flatlined, inflation has risen, and employers have been forced to make tough decisions to balance their books. With inflation impacting everything from raw materials to overheads, many are feeling the strain. However, the most immediate financial pressure is coming from increased payroll expenses.
A significant hike in employer National Insurance (NI) contributions, effective from April 2025, is set to increase from 13.8% to 15%. On top of that, the government’s plan to raise the minimum wage by 6.7% is adding another layer of financial burden for employers. These changes are particularly tough for small businesses, who are already struggling with tight margins.
The consequences of these changes are far-reaching. For some, this means putting growth plans on hold and scaling back investments. Others are already making the difficult decision to reduce staff levels or cut working hours to cope with escalating costs. As one respondent shared, “These increases also force demand for wage increases from staff above the minimum wage level to ‘keep their margin’.”
Hope for survival, not growth
Amidst these economic challenges, the outlook for growth is dimming. Just 49% of businesses expressed confidence in the likelihood of growth in 2025, while 26% said they were simply “hoping for survival.” This marks a worrying shift from 2024, when the number of businesses in this position was significantly lower at 19%.
In fact, survival is now the primary focus for many businesses, with almost four in 10 prioritising staying afloat in the face of escalating costs and changing government policies. Some respondents have even had to tell staff that salary increases would be frozen this year, with some companies pausing investment plans entirely.
The recruitment and retention dilemma
In addition to rising costs, businesses are also grappling with recruitment and retention challenges. The labour market remains tight, and many companies are struggling to fill vacancies, particularly in sectors that have been hit hardest by cost increases. To make matters worse, businesses are also concerned about the looming Employment Rights Bill, which could introduce more regulatory changes, further increasing costs and complicating the recruitment process.
One of the few bright spots in the report was that fewer businesses are worried about the threat of a recession. Only 18% of businesses now cite recession as their biggest concern, down from 27% in 2024. However, the focus has shifted from the broader economic downturn to specific, immediate threats like rising wages, recruitment difficulties, and the regulatory burden businesses face.
Remote working: A balancing act
In the wake of the pandemic, hybrid and remote working arrangements became the norm for many office-based businesses. But as we enter 2025, some larger companies are beginning to scale back on remote work, with organizations like PwC and Amazon asking staff to return to the office for a set number of days per week.
The shift in working patterns is causing some concern, particularly for businesses worried about recruitment and staff retention. With many workers now expecting more flexibility, employers must balance the needs of the business with the desire for work-life balance. As Kate Palmer, employment services director at Peninsula, explains, “Companies will need to consider the business needs and what works best for them, balanced with the wider implications of how any changes could impact on staff retention and recruitment.”
What lies ahead for UK businesses in 2025?
The road ahead for UK businesses is undeniably challenging, with rising costs, increased payroll expenses, and uncertainty about the future dominating the conversation. As we continue to adjust to the evolving economic landscape, businesses must carefully manage their financial resources, stay ahead of changing legislation, and find ways to adapt to the new world of work.
Despite the tough conditions, businesses must remember that adaptability is key. While it’s difficult to predict what the future holds, those that can strategically manage costs, embrace innovation, and make thoughtful decisions about their workforce will be better positioned to weather the storm and thrive in the long run.
For now, businesses must focus on survival, making tough decisions where necessary, and preparing for the changes ahead. The coming months will undoubtedly test the resilience of the UK’s business landscape, but with careful planning and a proactive approach, there is hope that 2025 can be a year of recovery, even if growth remains a distant goal.
Sources:
Peninsula UK Employer Confidence Index 2025 Survey
Accountancy Daily