Almost a third of business owners have said they will need to make redundancies in the year ahead.
Research from Evelyn Partners conducted in the run-up to the Autumn Budget in October 2024 highlighted concerns about the impact of the cost of living crisis on consumer demand (31 percent), tax rises (26 percent), and increases in the cost of raw materials and goods (23 percent).
The survey of 500 business owners with turnovers of £5 million upwards, revealed that 31 percent believe they’ll need to embark on a wave of redundancies in the coming year. A similar proportion (30 percent) said it was likely that they would default on debt over the next 12 months.
The rate of redundancies per thousand employees has ticked up in the past year.
Seasonally adjusted data from the Office for National Statistics showed that redundancies per thousand employees were 3.1 for July to September 2024, up from 2.6 for the same three months in 2023. Redundancy levels were 3.8 per thousand employees for April to June 2024, and 3.8 for the same quarter the year before, while the rate for January to March 2024 was 3.1 per thousand up from 2.9 for the same period in 2023.
The latest redundancy rates, released by ONS on 12 November 2024, show activity is well below the pandemic high of 14.5 employees per thousand recorded for September to November 2020.
And, currently, levels of workforce redundancies remain lower than the pre-pandemic rates of 2019 which were 3.3 per thousand in Q1, 3.8 in Q2, 4.3 in Q3, and 3.9 in Q4.
However, rises in employer national insurance contributions and the minimum wage confirmed by chancellor Rachel Reeves will impact employers from April next year.
Employer NI will rise from 13.8 percent to 15 percent from April 2025, while the national living wage will rise from £11.44 to £12.21 an hour from 1 April 2025, and the national minimum wage for 18 to 20 year olds will rise from £8.60 to £10.00 an hour.
Employers have also voiced concern about the Employment Rights Bill that will strengthen employee rights and potentially add to business costs.
Claire Burden, head of the advisory consulting team at Evelyn Partners, said: “The cumulative impact of inflation over recent years is still hitting businesses hard. Many industries have not been able to pass on the full extent of their cost increases and this has left some firms fighting for their survival. Business owners face a perfect storm as the lingering cost of living crisis has prompted consumers to tighten their spending.
“Our research shows that business owners were feeling the heat even before the budget landed them with higher NI costs. It’s deeply worrying that so many business owners are expecting to need to make redundancies over the year ahead. Cash reserves for many businesses are under pressure in the current environment and we can therefore expect to see some default on their debts.
“The recent budget piled more pressure on businesses with the need to plan for rising costs in the coming years. Firms in labour-intensive sectors, such as hospitality, will be hit particularly hard by rising wage bills and some businesses will struggle to keep their heads above water.
“Business owners need to urgently scrutinise their operating models and plans to stay ahead in the challenging business environment. Businesses should prepare prudent forecasts and carefully consider their discretionary spending.”
