What a £4 flat white can tell us about jobs, costs and youth unemployment.

Published: 15 July 2026
Authors: Samantha Mackie

Rising costs, new rights: The challenge facing retail employers

The UK's consumer and retail sector is facing a difficult balancing act. Businesses are already contending with rising wage costs, higher National Insurance contributions, energy prices, inflationary pressures, supply chain disruption and changing consumer behaviours, leading to increasingly tight margins.

A recent article in The Independent illustrates just how slim those margins can be. It revealed that a £4.10 flat white generates just 18p profit once costs such as wages, high utilities and business rates, VAT and overheads are accounted for.

While this may surprise consumers, it highlights a fundamental reality facing employers. Rising costs of ingredients and supply chain disruption have also increased the cost base for hospitality operators. Increasing the stakes even further, of the £4.10 charged, around £1.60 is attributable to staff costs alone. This underscores the fact that despite industry specific pressures, labour is often the largest cost in service-led businesses.

Against this backdrop, the Employment Rights Act 2025 (ERA 2025) is set to introduce significant additional employment costs and obligations. For employers operating on narrow profitability margins, the reforms raise concerns about whether additional costs can be absorbed without impacting recruitment, product quality or consumer prices.

The changing employment law landscape

The ERA 2025 represents one of the most significant changes to UK employment law in a generation. This is particularly significant for consumer and retail employers, whose business models often depend on large workforces, flexible staffing arrangements such as part-time workers and the ability to respond quickly to fluctuating customer demand during seasonal periods.

Key changes include:

• earlier unfair dismissal protection: From January 2027, employees will be able to bring unfair dismissal claims after six months’ service rather than two years, reducing employers' ability to assess suitability and performance before legal risk arises. This is particularly significant for sectors with high staff turnover and large volumes of entry-level recruits
• guaranteed hours obligations and compensation for cancelled shifts: From 2027, employers will be required to offer certain zero hour and low hour workers contracts that more closely reflect the hours they have actually worked over a reference period and may have to pay compensation and face penalties for cancelling or changing these workers’ shifts at short notice. This could significantly affect businesses that rely on flexible staffing models to manage seasonal peaks and changing demand
• extended time limits for bringing claims: From October 2026, most tribunal claims will be subject to a six-month limitation period rather than three months, increasing legal uncertainty and the cost of managing workplace disputes
• from October 2026, there is a proactive duty to take ‘all reasonable steps’ to prevent sexual harassment, and to prevent third-party harassment related to any protected characteristic: This is particularly relevant for customer-facing sectors where employees regularly interact with members of the public.
• uncapped compensation for unfair dismissal: The removal of the statutory cap on compensation from 1 January 2027 increases financial exposure arising from employment disputes at a time when many businesses are already operating on narrow margins.

Cost pressures and workforce decisions

Several of the reforms under the ERA 2025 are likely to increase both direct labour costs and the costs associated with managing legal risk:

• guaranteed hours and compensation for cancelled shifts may make it more difficult for employers to align staffing levels with fluctuations in customer demand, potentially increasing labour costs during quieter trading periods
• earlier unfair dismissal protection and uncapped compensation increase the risks associated with recruitment decisions. Employers may face greater costs where employment relationships do not work out, either through defending claims or through increased settlement and compensation exposure
• additional sexual harassment prevention obligations are also likely to require further investment in policies, training, and reporting processes

These reforms arrive at a particularly challenging time for the sector where even modest cost increases can have a disproportionate impact on profitability. Historically, employers could respond through flexible staffing arrangements or adjusting working hours. However, as the ERA 2025 limits some of these options, employers may instead place greater emphasis on reducing recruitment, implementing earlier performance management processes or investing in automation.

Implications for youth employment

The implications of these changes may extend beyond business profitability. Increased labour costs and legal risks may make employers more cautious about creating new roles or taking chances on inexperienced candidates.

This is particularly significant for young people. Consumer and retail employers, such as coffee shops and high street chains, have traditionally provided an important entry point into the labour market, allowing young people to gain work experience and develop transferable skills. But where the cost and risk of employment increases, employers may become more selective in their hiring decisions, potentially reducing opportunities for first-time entrants to the workforce.

Recent data shows that youth unemployment is already rising. Around one million young people are classified as not in education, employment or training (NEET), representing approximately 13.5% of all 16- to 24-year-olds. The ERA 2025 reforms risk adding further pressure to an already challenging picture.

What should employers be doing now?

Consumer and retail employers should begin preparing for the practical impact of further changes under the ERA 2025 and the additional costs it may bring. In particular, employers should consider:

• reviewing recruitment and probationary processes to ensure performance, conduct and attendance concerns are identified and managed effectively within the first six months of employment
• strengthening measures to prevent sexual harassment including reviewing policies, reporting procedures, and training, particularly for customer-facing staff
• assessing workforce planning and scheduling models to ensure they remain suitable in light of guaranteed hours obligations
• preparing for an increased risk of employment litigation by reviewing record-keeping practices, manager training and internal processes for early dispute resolution
• considering the role of technology and automation within workforce planning as labour costs and compliance obligations increase

Conclusion

The £4.10 flat white demonstrates just how little room many consumer and retail businesses have to absorb additional costs. Against a backdrop of rising operating expenses, the ERA 2025 is set to introduce further labour costs, legal risks and compliance obligations.

While the reforms intend to strengthen worker protections, they may also influence how employers recruit, manage and retain staff. The challenge for businesses in the sector will be balancing these new obligations with commercial reality, without passing costs on to consumers, impacting product quality or reducing opportunities for those entering the workforce.