The UK’s hospitality and care sectors are grappling with significant financial pressures due to recent increases in National Insurance (NI) contributions and the National Living Wage (NLW).

These changes, while aimed at improving employee welfare, have inadvertently strained businesses already operating on thin margins.​

In the Autumn 2024 Budget, the Government announced a rise in employer NI contributions from 13.8 per cent to 15 per cent, effective from April 2025.

Additionally, the threshold at which employers begin paying NI was reduced from £9,100 to £5,000.

Concurrently, the NLW for workers aged 21 and over increased by 6.7 per cent, reaching £12.21 per hour.

These measures collectively add substantial costs to businesses in the hospitality and care sectors.

Impact on the hospitality sector

The hospitality industry, contributing over £90 billion annually to the UK economy and employing approximately 3.5 million people, is particularly vulnerable to these cost escalations.

Dominic Paul, CEO of Whitbread, which owns Premier Inn and employs over 35,000 staff, highlighted that increased employment costs could hinder investment and job growth, especially affecting part-time and lower-wage workers.

Similarly, some pub chains have responded by increasing prices to offset the additional financial burden. ​

Challenges in the care sector

The care sector is also under significant strain.

The Nuffield Trust warned that the combined effect of increased NI contributions and the NLW could add £2.8 billion in costs to care providers, many of whom are already struggling financially.

This surge in expenses risks the collapse of large parts of the adult social care market in England, potentially disrupting services for vulnerable individuals.

Moreover, nursing home costs have escalated, with one in seven now charging self-funding residents more than £1,800 per week, partly due to rising labour costs. ​

Increased risks of insolvency

Industry leaders are warning that without urgent Government action, many businesses in the hospitality and care sectors could be pushed into insolvency.

Over 200 hospitality businesses have signed an open letter to Chancellor Rachel Reeves, cautioning that the rising cost burden is driving businesses toward financial collapse.

For many employers, the compounding costs of wage increases, and tax rises are unsustainable.

Fixed costs such as rent, energy, and supplies have already surged due to inflation, and now additional payroll expenses threaten cash flow stability.

Unless decisive action is taken, the insolvency crisis in these industries may become unavoidable.

If you operate in these sectors and you are worried about insolvency, please get in touch.