Government Policy Shifts 2025: The Effects On Small Businesses And Recruitmnent

April 28, 2025

So far 2025 has been a rather tumultuous time, with a lot of policy shifts and economic changes occurring. The UK Government have begun to implement several new policies that will have an effect on small businesses and recruitment, some of these changes will provide support while others are introducing new challenges. We’ve summarised some of the main changes below, looking ahead and planning strategically is key for successfully adapting to these developments.

Employment Rights Bill

Key Changes:

Day-One Rights: Employees now entitled to sick pay, parental leave, and unfair dismissal protection from day one.
Zero-Hours Contracts: Tighter regulations to ensure predictable work schedules.
Union Powers: Increased authority could lead to more collective bargaining.

These changes mean workers are more protected, as is their livelihood. However, there are also some knock-on effects for employers and small businesses. The most obvious effect will be the cost to employers, which has already been seen to cause changes in the job market. There appears to be a decrease in jobs, as businesses are hesitant about bringing on new staff with the additional costs involved, which in turn is making the job market even more competitive. The Federation of Small Businesses have warned that these ripples could have a possible impact on economic growth.

National Insurance Contributions (NIC) Changes

From April 6, 2025:

NIC increase: Employer contributions rise from 13.8% to 15%.
Threshold drops: From £9,100 → £5,000.
Support measure: Employment Allowance rises from £5,000 → £10,500.

This change aims to balance the new financial strain with additional support, but small businesses will need to review payroll and hiring strategies in light of this increase.

Low-Value Import Tax Exemption Review

Key Change:

Scrapping the exemption for goods under £135.
Aims to curb cheap imports from overseas (e.g. online retailers).

Currently, goods under the value of £135 can be brought into the UK without paying any customs duties. The government are concerned that with Donald Trump’s trade war with Beijing, the UK will be flooding with cheap imports, hence this measure is an attempt to reduce that volume. However, the policy lead, Tina McKenzie, at the FSB is concerned that this will make exporting harder for small businesses across the world, and “with 16% of goods moved by small firms sitting below the £135 threshold” this would, in the end, result in higher prices for consumers.

Company Size Threshold Adjustments

Effective April 6, 2025:

Criteria like turnover and employee count are changing.
Many businesses may shift into new categories.

Starting April 6, the rules around what counts as a small, medium, or large business are changing. This means thousands of businesses will have fewer reporting and audit responsibilities.

The government expects around 113,000 small businesses and LLPs to be reclassified as microbusinesses, 14,000 to move from medium to small, and 6,000 from large to medium. The biggest impact will be on businesses shifting from medium to small, they’ll no longer need to do a statutory audit or produce a strategic report. Microbusinesses will also catch a break, as they won’t have to create a directors’ report anymore.

Who’s most affected by these policy shifts?

Employment Rights Bill
Industries that rely on flexible staffing, like hospitality, retail, and events, may feel the impact of the changes the most. These sectors often use zero-hours contracts and have high staff turnover, so tighter regulations and immediate employee rights could create both logistical and financial pressure.

National Insurance Contributions

Sectors that employ large numbers of lower-paid staff are likely to feel the financial impact of the increase most heavily.

Low-Value Import Tax Exemption

E-commerce businesses, independent retailers, and craft sellers could be hit particularly hard, especially those who rely on exporting lower-cost products or selling internationally through platforms like Etsy or eBay.

Overall, there are a fair few policy shifts taking place so far this year, with most likely more to come, small businesses need to remain adaptable and informed, so they aren’t hit with any surprises. For more information on any of the above topics, please refer to these sources: