14th October 2026
Britain's retailers and hospitality businesses are warning that the rising cost of employing people is making it harder to recruit, particularly when it comes to young people seeking their first job.
The concerns have come into sharper focus after leading retailers and hospitality companies urged Chancellor John Healey to reconsider aspects of the tax system and provide relief from business costs.
Their argument is straightforward: employing someone costs considerably more than paying their hourly wage. Employers must also account for National Insurance contributions, pension obligations, holiday pay, training and other employment expenses.
When these costs rise, businesses must decide whether to absorb the increase, raise prices, reduce other spending or employ fewer people.
That does not mean every employer will cut jobs, but it does raise an important question for the Government: are policies intended to raise revenue and improve workers' conditions inadvertently making some employment opportunities harder to create?
Why employers are concerned
The British Retail Consortium and businesses including Tesco, Costa Coffee and the Co-operative Group have raised concerns about the cost of employing people, particularly in retail and hospitality.
One major issue is the change to employer National Insurance contributions introduced under the previous Chancellor, Rachel Reeves.
The threshold at which employers begin paying National Insurance on an employee's earnings was reduced from £9,100 to £5,000 a year. The employer contribution rate was also increased.
These changes mean that businesses pay employer National Insurance on a larger proportion of many employees' earnings.
The impact can be particularly noticeable for businesses employing large numbers of people on relatively low wages or part-time hours. Retailers, cafés, restaurants and hotels often operate with substantial workforces, and even a modest increase in the cost of employing each person can add up across hundreds or thousands of employees.
Businesses have asked the Government to raise the threshold to £6,000, arguing that this would ease some of the pressure and help protect job opportunities.
They have also called for action on business rates, which can represent a significant fixed cost for shops, pubs, restaurants and other premises-based businesses.
Why young people may be particularly affected
Retail and hospitality have traditionally provided an entry point into employment for young people.
A first job can provide experience of dealing with customers, handling money, working in a team and meeting workplace responsibilities. It can also help young people earn money while studying or gain the experience needed to move into other careers.
However, these industries can be sensitive to increases in employment costs because many roles are part-time, involve relatively low hourly wages or require additional staff during busy periods.
If the cost of employing another person rises, a business might decide to ask existing employees to cover additional shifts instead. It might shorten opening hours, reduce the number of people working at quieter times or invest in technology to handle tasks previously performed by staff.
The result may be fewer opportunities for young people to get their first job, even if the business itself remains open and profitable.
UKHospitality has warned that the sector has lost around 100,000 jobs over the past two years and argues that higher employment costs threaten its ability to recruit young workers.
These figures do not establish that tax changes alone caused the losses. Weak consumer spending, higher rents, energy bills, food prices and changing shopping habits can all affect employment. Nevertheless, employment taxes are one of the costs businesses must consider when deciding whether to recruit.
The Government has another side to the argument
There is a legitimate case for increasing the tax contributions expected from employers.
National Insurance helps fund public services, and the Government must find the money needed to support the NHS, pensions and other spending commitments.
Employers also benefit from the public infrastructure, education and services that enable businesses to operate and workers to participate in the economy.
The Government must therefore balance the need to raise revenue against the risk that higher employment costs could discourage recruitment or push businesses to increase prices.
There is a further consideration. Higher wages and improved employment rights can benefit workers, reduce financial insecurity and help people remain in work.
Business groups naturally focus on the costs they face. Workers, meanwhile, may focus on wages, predictable hours and fair treatment. A successful employment policy needs to recognise both perspectives.
The question is not simply whether employing people should be cheaper. It is whether the tax system and employment rules are designed in a way that supports sustainable businesses, decent jobs and the public services on which the economy depends.
Could lower employment taxes create more jobs?
Businesses argue that reducing employer National Insurance costs would give them more scope to recruit.
There is an economic argument behind this. If employing an additional worker becomes cheaper, some businesses may be more willing to create a position that would otherwise have been unaffordable.
However, the outcome is not automatic.
A retailer that has plenty of customers but is struggling with employment costs may respond to a tax reduction by taking on staff. A business facing falling sales may still have little reason to recruit, even if the cost of employment falls.
Some companies may use any savings to improve their finances, invest in equipment or restore profit margins rather than create additional jobs.
The scale of any employment benefit would depend on the size of the tax reduction, the condition of the economy and the circumstances of individual businesses.
There is also the question of how the Government would replace the revenue lost from a reduction in employer contributions. A cut that helps one part of the economy may require higher taxes elsewhere, reduced public spending or additional borrowing.
That is why proposals for tax relief should be accompanied by evidence about their likely costs and benefits.
The danger of making it harder to get a first job
The wider issue goes beyond the immediate dispute over National Insurance.
When vacancies fall and employers become more cautious about recruitment, young people and those with limited experience can find themselves at a disadvantage.
Businesses may prefer experienced applicants who can contribute immediately, leaving those seeking their first job struggling to get a foot on the employment ladder.
That can have lasting consequences. Early work experience helps people build confidence, develop skills and establish a record that future employers can recognise.
If opportunities disappear, young people may spend longer outside employment or education, with implications for their future earnings and prospects.
The Government needs to consider whether its employment and tax policies are helping businesses offer those opportunities, while ensuring that jobs provide fair treatment and reasonable conditions.
What does this mean for Scotland?
These concerns matter across Scotland, where retail, tourism and hospitality are important employers.
In cities, large retailers may have some scope to spread costs across multiple branches. In smaller communities, a shop, café, hotel or pub may have much less room to manoeuvre.
A business in Caithness or Sutherland can face a combination of employment costs, transport expenses, seasonal demand and a relatively small local customer base.
If the cost of employing staff rises while customers become more cautious about spending, an owner may decide to reduce opening hours, operate with fewer employees or delay expansion.
That can have consequences beyond the individual business. Local shops and hospitality venues provide employment, support town centres and give residents and visitors places to spend money. When they contract, other businesses can lose customers too.
However, it would be wrong to assume that every local closure or lost job is caused by National Insurance changes. Businesses face a range of pressures, and the importance of each will vary.
What matters is that the Government understands how its decisions affect employers of different sizes and in different parts of the country.
Finding a balance before the Budget
With the next Budget approaching, employers are pressing for changes to employment taxes and business rates.
The Government faces a difficult choice. Reducing employment costs could help some businesses recruit, but it would also reduce tax revenue unless the money were recovered elsewhere.
Doing nothing carries risks too. If businesses respond to higher costs by employing fewer people, the Government could lose some of the tax revenue it hoped to raise while facing greater pressure from unemployment and weaker economic activity.
A sensible response would require a careful assessment of which businesses are most affected, whether lower employment costs would lead to additional recruitment and how any tax changes could be funded.
It should also recognise that employment is influenced by more than taxation. Consumer confidence, energy prices, access to finance and the prospects for economic growth all affect employers' decisions.
The real test is whether Britain can create more opportunities
The debate about the cost of employing people is ultimately about the kind of economy Britain wants to build.
Businesses need to remain viable and have sufficient confidence to invest. Workers need fair pay, reasonable conditions and opportunities to progress. Young people need routes into employment, while the Government needs enough revenue to finance essential public services.
Those objectives are not necessarily incompatible, but achieving them requires careful policy choices.
The danger is that a tax change intended to raise revenue could have unintended consequences if it makes some jobs uneconomic. Equally, cutting taxes without convincing evidence that it will create employment could leave public finances worse off without delivering the promised benefits.
For Scotland's high streets and rural communities, the outcome matters enormously. Shops, cafés, hotels and other small employers are often among the most accessible sources of work for people entering the labour market.
The Government should therefore judge its policies not simply by how much revenue they raise, but also by their effect on recruitment, business survival and the availability of decent jobs.
The ultimate question is whether Britain can fund the public services it needs while creating an environment in which employers have the confidence to take people on.
For the young person looking for a first job, that balance is not an abstract argument about taxation. It can determine whether an opportunity exists at all.