Britain’s mid-sized businesses risk being squeezed between rising employment costs and a lack of meaningful financial relief, as the latest Budget measures leave what one business leader calls the “forgotten middle” with limited room to invest and expand.
Chancellor John Healey announced that the National Living Wage would rise by 3.9 per cent to £13.21 an hour from April 2027, while eligible retail, hospitality and leisure businesses will receive increased business rates relief. Although the measures offer support to workers and parts of the high street, mid-market companies face higher wage bills without necessarily enjoying the financial resources of larger corporations or the targeted assistance available to smaller firms.
Darren Cran, chief executive of financial software provider AccountsIQ, said the Budget had left a significant section of the business economy exposed.
“The UK Budget has offered crucial relief for households and some of the smallest high-street businesses, but this leaves the ‘forgotten middle’ exposed. While they’ve avoided fresh tax levies today, there isn’t any room to manoeuvre either.
“These firms can’t change what the Budget has or hasn’t delivered, but they can change how they respond. The businesses that come through this well will be the ones that know exactly where their money is going and are prepared to fix the processes that are quietly costing them.”
The latest wage increase adds to a substantial rise in labour costs over recent years. The National Living Wage has increased by 61 per cent since the beginning of 2020. The government estimates the latest rise will add about £910 a year in gross earnings for a full-time worker, before employer National Insurance contributions.
For businesses employing large numbers of lower-paid workers, the cumulative effect can be significant. Higher payroll costs can narrow operating margins, constrain recruitment and leave less money available for equipment, technology and expansion.
Cran said mid-sized companies faced a particularly difficult balancing act: absorbing higher costs while maintaining the investment needed to remain competitive.
“The 3.9% increase in the National Living Wage is the right outcome for workers, but it adds to the cost pressures mid-sized firms must absorb while still finding headroom to invest and grow. These businesses employ a significant share of the UK workforce but fall into a dangerous blind spot, lacking both the scale of large corporations and the safety nets available to small businesses.”
He argued that automation and better financial data could help companies identify inefficiencies and make more informed decisions.
“Automation and better use of data can help reduce manual workloads, improve visibility and give finance teams more time to identify risks and opportunities across the business. Every hour taken out of manual processing is an hour finance can spend understanding the numbers and working with the rest of the business to spot risks and opportunities earlier.”
But the growing pressure to adopt artificial intelligence (AI) brings its own risks. Companies facing higher costs may be tempted to accelerate technology investment in the hope of securing productivity gains, without necessarily having the processes or oversight to make it effective.
Cran warned that introducing AI without proper controls could create additional complexity rather than deliver savings.
“Businesses are being told to do more with less, and AI is increasingly presented as the answer to that challenge. But there is a difference between investing in AI and making it work in practice. Finance teams cannot simply introduce new technology and assume the productivity gains will follow.
“They need to understand how it is being used; trust the figures it produces and retain the ability to check and sign off decisions. Without that confidence, businesses risk adding another layer of complexity when they are already under pressure to control costs.”
AccountsIQ research found that 82 per cent of finance leaders felt pushed to adopt AI faster than they were comfortable with, highlighting the tension between the drive for efficiency and the need for reliable financial oversight.
Cran said businesses should embrace the technology, but avoid treating speed of adoption as a substitute for effective implementation.
“The answer isn’t to slow down, it’s to adopt with the right controls. Every technology shift brings two benefits: what the tool does, and a business that gets better at change. Finance is well placed to lead both.”
For the UK’s mid-market, the challenge is increasingly clear: with labour costs rising and direct support limited, finding productivity gains may become essential to preserving both profitability and future growth.
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