A typical mid-sized UK firm is now paying roughly 70% more in government-driven costs than it was a decade ago. That's the headline from new research by the British Chambers of Commerce, and on its own it reads like a business lobbying story. Look closer and it's also a story about what happens at renewal, when a squeezed client starts asking their broker where they can save money, and insurance is usually near the top of that list.
The BCC has built a cost stack calculator that strips out inflation, Brexit and global shocks so it can isolate the effect of domestic policy alone. Its finding: a firm turning over around £5m and employing 50 people is now carrying costs that have risen by more than 70% since 2016, once you add up employer National Insurance Contributions (NICs), the National Living Wage, business rates, energy levies and pension auto-enrolment.
The largest single jump, per the BCC, came from the rise in employer NICs announced at the October 2024 Budget. The rate went from 13.8% to 15%, and the threshold at which firms start paying it was cut from £9,100 to £5,000. Together, those two changes are estimated to have added around £25bn a year to employer costs from April 2025.
Add to that a National Living Wage that has climbed from £7.20 an hour in 2016 to £12.71, and auto-enrolment pension contributions that have tripled from 1% to 3% of qualifying earnings, and the pressure on labour-intensive SMEs becomes obvious. David Bharier, deputy director at the BCC, said the cumulative burden has "priced many firms out of growth."
The BCC's model deliberately leaves out tariffs, Brexit-related trade friction and general inflation, so the real cost pressure on many businesses will be higher than the 70% figure suggests.
A business trying to protect its margin against a bigger wage bill and a bigger tax bill will look for savings somewhere, and insurance premiums are often one of the first lines to get questioned. That's already showing up in the numbers. Premium finance provider Premium Credit's Insurance Index found that 69% of SMEs saw higher premiums over the past year, and that vehicle cover, property, employers' liability, cyber and business interruption were among the policies most likely to be trimmed or dropped as a result. More than four in ten of the SMEs surveyed expect their level of underinsurance to worsen over the next year.
That fits with what Insurance Business has reported from the rural and agricultural side of the market, where outdated rebuild valuations and coverage gaps are already leaving diversified farm businesses exposed. Research from the Association of British Insurers has found similar patterns nationally, including a meaningful share of small firms with no employers' liability cover at all, despite it being a legal requirement.
Why the Condition of Average makes this worse than it looks. When a policyholder cuts their sums insured to save on premium, or simply never updates a rebuild valuation as costs rise, most commercial property and business interruption policies contain a clause called the Condition of Average. If the sum insured turns out to be lower than the true rebuild cost at the time of a claim, the payout is reduced by the same proportion. A property insured for 70% of its actual value, for example, typically gets a claim paid at 70% of the loss, not the full amount. For a business already cutting cover to manage costs, this is the mechanism that turns a manageable renewal decision into an unrecoverable loss later on.
Chancellor John Healey's first Budget is due in the final week of October. The BCC wants Prime Minister Andy Burnham's government, which took office in July promising to be "pro-business," to apply what it calls a "growth delivery test" to any new measures. Economists at Capital Economics and elsewhere expect further tax rises, though this time the burden is expected to fall more on households than on employers.
Insurers aren't immune from any of this either. They're employers too, and rising NICs and wage costs feed into their own cost base in ways that analysts have suggested could push up claims costs in liability, motor and property lines over time. At the same time, insurers have posted strong first-half results this year, and that competitive backdrop is giving brokers real room to negotiate at Q4 renewal rather than simply passing increases through.
Clients coming into renewal under this kind of cost pressure will often ask to cut cover first and think about the consequences later. Brokers who get ahead of that conversation have a few concrete tools: premium finance to smooth the cash-flow hit instead of dropping a policy outright, an updated rebuild valuation instead of a sum insured that hasn't moved in years, and a proper audit of where cyber, business interruption or key person cover has quietly lapsed since the last renewal.
The point isn't to talk clients into spending more than they can afford. It's to have the cost-of-business conversation before the Budget lands in late October, not after a claim exposes a gap nobody had looked at since 2016.
Figures on business cost increases are drawn from BCC research. Specific totals such as the £827,000 annual cost increase for a typical mid-sized firm are illustrative modelled outputs rather than audited figures, and brokers advising clients on this should check the BCC's calculator directly for firm-specific numbers.
