Staffing Costs Surge as 41% of UK Businesses Report Rising Employment Bills

Businesses across the United Kingdom are confronting an intensifying cost crisis, with four in ten larger employers reporting sharp increases in staffing expenditure, according to new data from the Office for National Statistics (ONS). The latest figures reveal that 41% of businesses employing ten or more staff said their employment costs—encompassing wages, bonuses, National Insurance contributions, and pension payments—had risen over the three months to February 2026, marking a significant escalation from recent months.

This represents a six percentage point increase compared with November 2025 and a five percentage point rise year-on-year from February 2025. The trend reflects mounting pressure on UK employers as they navigate multiple cost headwinds simultaneously: increases to employer National Insurance contributions from April 2025, the rising National Living Wage, and the cumulative effect of wage inflation across the labour market.

The ONS data coincides with widespread concern across British business about the employment tax changes announced in the recent Budget. Analysis by the UK Hospitality sector reveals that the employment tax measures will increase the cost of employing a full-time staff member by at least £2,500. For a typical worker aged 21 or older earning the National Living Wage and working 38 hours per week, employer National Insurance Contributions are set to rise by 53.9%, climbing from £1,863 to £2,869.

The hospitality sector faces the most pronounced squeeze, with employers experiencing a 10% rise in the cost of employment per person. This disproportionate impact reflects the industry’s reliance on lower-wage workers who fall beneath the new National Insurance threshold. The Federation of Small Businesses estimates that a small firm employing nine staff on the National Living Wage will see its annual employment bill rise by £25,850 between January 2025 and April 2026—a 12.9% increase—whilst employer National Insurance costs alone will jump by 46%.

The ONS survey data aligns with warnings from business representative bodies about the labour market implications. The British Chambers of Commerce reports that fewer than a quarter (23%) of surveyed businesses are planning to increase their workforce in the coming three months, down from 25% in the previous quarter. Conversely, 14% of firms expect to reduce staff numbers, and 63% anticipate their staffing levels will remain unchanged.

According to the British Retail Consortium, 45% of retail firms have frozen recruitment entirely, whilst 61% are planning to reduce staff hours. In hospitality and food services—sectors where labour costs dominate operational expenses—similar cost pressures are constraining hiring. These freezes emerge as businesses attempt to absorb escalating employment costs without immediately raising prices or cutting investment. The Federation of Small Businesses cautions that many small firms face an impossible choice: curtail expansion ambitions, reduce working hours for existing staff, or make redundancies.

The data underscores why employment expenses have become the paramount challenge for Britain’s larger enterprises. According to the ONS, cost of labour was the most frequently reported challenge for trading businesses with ten or more employees in early February 2026, cited by 36% of firms. This pressure proved particularly acute for smaller large businesses: firms with ten to 49 employees were significantly more likely to report labour cost concerns (37%) compared with those employing 250 or more staff (20%).

Beyond immediate wage bills, businesses report that rising employment costs are forcing difficult trade-offs in other investment areas. The British Chambers of Commerce notes that over one-fifth of firms have cut staff training budgets, with 57% reporting unchanged investment in workforce development. This represents a concerning trend given that pervasive skills shortages continue to constrain UK economic growth.

Whilst the UK services sector has expanded for ten consecutive months through February, the pace of growth has moderated since the beginning of 2026. Respondents to business surveys increasingly cite hiring freezes and the non-replacement of voluntary departures as employers respond to reduced business requirements and elevated cost pressures. Higher employment costs remain the primary factor driving rises in input prices across the services sector.

Simultaneously, economic uncertainty persists as the most widely reported challenge affecting turnover for trading businesses, cited by 30% in early February 2026. For firms with ten or more employees, labour costs and economic uncertainty represent twin pressures constraining both hiring decisions and investment intentions.

Key Takeaways

• 41% of businesses with 10+ employees reported staffing costs rising over the three months to February 2026, up from 35% in November 2025
• Employer National Insurance contribution increases from April 2025 will raise the cost of employing a full-time National Living Wage worker by at least £2,500 annually
• Hospitality and food service sectors face the steepest cost burdens, with the British Retail Consortium reporting 45% of retail firms freezing recruitment
• Fewer businesses are planning workforce expansion, with only 23% of firms expecting to increase staff numbers in the coming three months
• Over one-fifth of businesses have reduced staff training investment due to rising employment costs

What This Means for Kent Residents

For Kent households and workers, this employment cost crisis carries tangible consequences. The region’s significant hospitality sector, concentrated in coastal areas and around transport hubs, faces particular pressure to maintain current employment levels. Rising business costs often translate into reduced hiring opportunities for young people and those seeking entry-level roles—sectors where Kent’s labour market remains competitive. Small retailers across Kent’s high streets confront difficult choices between maintaining current opening hours and staffing levels. For existing employees, whilst wage growth continues, the broader employer cost squeeze may dampen prospects for future pay rises and investment in workplace training. Kent’s position as a transport and logistics hub also exposes the region to wider employment pressures as distribution and warehousing businesses absorb higher employment costs.