Can businesses keep up? Rising costs find 1 in 4 unprepared

As 2025 progresses, businesses across the UK are facing intensifying financial pressure. Rising wages, increasing Employer National Insurance Contributions (NICs), and growing statutory payments are squeezing profitability, forcing many companies to rethink their financial strategies.

New research from online print provider instantprint, based on a survey of 2,000 UK businesses, highlights the extent of the challenge. While many companies are adapting, a quarter of UK businesses have no strategy in place to cope with the rising cost burden.

Even more concerning, 43% of business owners remain unsure how to sustain growth amid these mounting expenses.

This uncertainty is compounded by a sharp increase in employer costs. With the National Living Wage rising to £11.44 per hour, payroll expenses are climbing, adding nearly £1,872 per employee annually.

NICs have also jumped from 13.8% to 15%, further tightening margins. For companies already struggling with high operating costs, the additional strain is forcing difficult decisions about hiring, expansion, and investment.

Rising Payroll Costs and Profitability Concerns

For many businesses, wage increases are now their single biggest financial concern. Instantprint’s survey found that 22% of respondents cite payroll costs as their primary challenge, with 25% fearing a significant decline in profitability due to the combined impact of higher wages, rising NICs, and increased statutory payments.

The financial strain is leading to strategic adjustments. Some businesses have put expansion plans on hold, prioritizing cost control over growth. Others are raising prices to pass some of the burden onto customers, though this strategy carries risks in an already fragile economy.

According to the survey, 27% of businesses plan to increase prices, a move that could impact competitiveness in a consumer market already sensitive to inflation.

Meanwhile, a smaller but still significant number of businesses are considering job cuts as a way to manage payroll costs. While only 7% anticipate making redundancies, the need to trim expenses could have a wider impact on recruitment, employee morale, and long-term workforce planning.

The Struggle to Retain Talent in an Expensive Labor Market

The rising cost of employment is not just affecting margins—it’s also putting pressure on employee retention.

Nearly half of businesses surveyed expressed concerns that financial pressures would negatively impact employee satisfaction and retention. Keeping wages competitive while managing higher costs has become a delicate balancing act.

Some companies are looking beyond salary increases to retain talent. Flexible work arrangements are emerging as a key strategy, helping employees reduce commuting costs while improving work-life balance.

Others are implementing performance-based pay structures, aligning compensation with productivity to ensure sustainability. Investment in upskilling and professional development is also gaining traction, allowing businesses to retain talent while future-proofing their workforce.

However, these measures are not a fix-all. Rising employment costs mean businesses will need to continuously adapt to balance financial stability with workforce retention. For many, the challenge will be finding solutions that do not compromise long-term growth.

Businesses Adjust to the New Cost Landscape

Despite the challenges, many businesses are taking action. The survey found that companies are actively adapting their operations to offset rising costs. Some have begun renegotiating supplier contracts, identifying areas where efficiency gains can be made.

Others are turning to automation and AI, reducing reliance on labor-intensive processes.

There is also a growing focus on streamlining operations. Nearly 28% of businesses are restructuring workflows to improve efficiency, while 29% are cutting non-essential expenses.

Another 22% are raising prices to help absorb higher labor costs, though this approach carries risks in a cost-conscious market.

Capital investment is also being reassessed. Many businesses are delaying expansion plans in favor of cost management strategies. This shift reflects a broader concern—while growth remains a long-term goal, financial survival is the immediate priority for many firms.

Laura Mucklow, Head of instantprint, emphasizes that businesses must be proactive in adjusting to this new landscape. “The focus is shifting towards smarter, more agile ways of working,” she explains.

“Whether expanding services, exploring new revenue streams, or investing in efficiency, businesses that take the time to critically review their operations now will be in a stronger position to weather the financial pressures ahead.”

The Outlook for 2025: Risks and Opportunities

The cost challenges of 2025 are unlikely to subside anytime soon. With economic uncertainty persisting, businesses will need to continuously adapt their financial strategies to remain competitive.

Those that successfully integrate cost-saving innovations, operational efficiency, and strategic workforce management will be better positioned to maintain profitability despite rising expenses.

For some, this period of adjustment will be difficult. For others, it may present an opportunity—forcing a rethink of traditional cost structures and pushing businesses toward greater financial resilience.

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