Faced with soaring employment costs and a sweeping new employment law, British retailers are preparing to slash staff hours, freeze hiring, and cut thousands of jobs, a major industry survey has revealed.
According to new research from the British Retail Consortium (BRC), 61% of retail finance chiefs plan to reduce staff hours and overtime, while 45% intend to freeze recruitment entirely. More drastic measures are also on the table, with 55% of bosses planning to reduce head office headcount and 42% looking to cut shop-floor jobs.
The bleak outlook is driven by a steep climb in wage bills. Retail employment costs rose by £5 billion last year following increases to employer National Insurance Contributions and the National Living Wage in April. The BRC estimates this pushed up the cost of employing a full-time entry-level worker by 10%, and by 13% for part-time staff. A further 4.1% rise in the National Living Wage is due this April.
Looking further ahead, the National Living Wage is set to rise to £12.71 per hour in April 2026 for eligible workers aged 21 and over, with higher increases for younger age groups. The BRC estimates that higher wage costs and changes to NICs alone will cost the industry over £5 billion a year, a figure that rises to £7 billion when a new packaging tax is included.
A Sector in Retreat
These pressures are accelerating a long-term decline in retail employment. The sector has shed 250,000 jobs over the past five years, and Office for National Statistics (ONS) data shows the number of UK retail jobs fell by a further 74,000 last year to 2.76 million—the lowest level on record.
With a smaller workforce, retailers are turning to technology and efficiency drives. The BRC survey found 68% plan to drive higher productivity and 61% will invest in automation to compensate.
The financial strain is feeding deep pessimism. Nearly seven in ten (69%) retail finance bosses described themselves as pessimistic or very pessimistic about the future, a significant increase from 56% in July of the previous year.
Broader Economic Headwinds
The retail sector’s struggles are unfolding against a difficult economic backdrop. Inflation, while easing, persisted at 3.4% in December 2025, above the Bank of England’s target and continuing to erode household spending power. Retail sales volumes saw a modest improvement in 2025 but remain below pre-pandemic levels, with growth reliant on heavy promotions. Meanwhile, retail insolvencies stayed elevated in 2025 and early 2026.
This is feeding into a wider jobs crisis. Official figures show the UK unemployment rate hit a five-year high of 5.2% in the three months to December 2025. Youth unemployment is climbing sharply, with 16.1% of 16 to 24-year-olds out of work—the highest rate since 2014. For 18-24 year olds, the rate is 14%, the highest since 2020. This is particularly alarming for a sector that has historically been a key provider of entry-level jobs for young people.
The Employment Rights Act Flashpoint
Compounding business anxiety is the impending implementation of the Employment Rights Act, which received Royal Assent in December 2025. The government says the reforms will boost productivity and provide job security for over 18 million workers. Its own impact assessment estimates the annual cost to businesses at £4.5 billion, potentially rising to £5 billion, predicting a 0.4% increase in the total wage bill.
Retail leaders, however, warn that the Act’s detailed provisions risk backfiring. Helen Dickinson, chief executive of the BRC, stated that the legislation is “the biggest shake-up of employment rules in a generation, and how it is delivered will make or break job opportunities.”
Industry concerns focus on new rules regarding sick pay, zero-hours contracts, and union rights, including measures making it easier for trade unions to access workplaces. While original plans for day-one protection against unfair dismissal were softened, retailers fear policies on guaranteed hours could reduce the flexibility needed to offer part-time and entry-level roles.
“If the Government fails to consider business needs on policies including guaranteed hours and union rights, they will add complexity and reduce flexibility, ultimately stripping away entry-level and part-time opportunities at precisely the moment the country needs them most,” Ms Dickinson said.
A Government spokesman responded: “We know retailers are facing a difficult time, but our employment rights act reforms will boost productivity and retention in workplaces across the UK. We are also supporting retailers through our small business plan, and we will work with business including the BRC to see what further support we can provide ahead of publishing our High Streets Strategy later this year.”
The government has announced a £150 million cash injection to help regenerate high streets, with more funding promised, and has a separate £1.5 billion drive to tackle youth unemployment, including making it easier to find apprenticeships.
