The British Cities Where Wage Pressure Is Highest for Employers
Doncaster, Southend and Sunderland have been identified as the British cities where businesses face the greatest wage pressure, according to new analysis of official earnings data.
British Business Funding analysed city-level wage data to identify the places where rising employment costs are likely to be having the greatest impact on employers.
The analysis comes as labour costs become an increasingly significant concern for UK businesses.
According to the latest Office for National Statistics Business Insights and Conditions Survey, published on 20 August 2026, 35% of businesses with at least 10 employees said the cost of labour was affecting their turnover, making it the most commonly reported turnover challenge for businesses of that size.
At the same time, the National Living Wage increased from £12.21 to £12.71 an hour in April 2026, a rise of 4.1%. The minimum wage for 18 to 20-year-olds increased by an even greater 8.5%, from £10.00 to £10.85.
But the impact of those increases is far from equal across the country.
The cities facing the greatest wage pressure
British Business Funding created a Wage Pressure Score using three measures of local labour-market exposure:
- The National Living Wage as a percentage of the city’s median workplace wage
- The percentage of workers already earning the minimum wage
- The percentage earning no more than £1 an hour above the minimum wage
The underlying city-level figures come from the May 2026 Centre for Cities Pay Check study, which calculated its figures using the Office for National Statistics’ Annual Survey of Hours and Earnings and Low Pay Commission data.
Only locations appearing on the Government’s official list of UK cities were included in the BBF ranking.
| Rank | City | Minimum wage as % of local median pay | Workers on minimum wage | Workers within £1 of minimum wage | Wage Pressure Score |
|---|---|---|---|---|---|
| 1 | Doncaster | 81.7% | 11.8% | 30.5% | 99.1 |
| 2 | Southend | 79.8% | 10.3% | 30.5% | 92.2 |
| 3 | Sunderland | 79.9% | 12.1% | 27.0% | 92.1 |
| 4 | Bradford | 75.6% | 10.4% | 26.6% | 81.1 |
| 5 | Nottingham | 75.9% | 9.4% | 27.6% | 80.0 |
| 6 | Norwich | 74.7% | 7.8% | 25.3% | 70.0 |
| 7 | Hull | 74.1% | 8.8% | 23.7% | 69.7 |
| 8 | Peterborough | 74.2% | 9.2% | 21.8% | 68.0 |
| 9 | Newcastle | 73.2% | 8.1% | 24.5% | 67.8 |
| 10 | Gloucester | 74.0% | 7.6% | 23.1% | 65.0 |
British Business Funding analysis of Centre for Cities data. Underlying wage data are from ONS ASHE and the Low Pay Commission. Figures relate to Primary Urban Areas.
Doncaster businesses are operating with the tightest wage gap
Doncaster stands out across all three measures.
The £12.71 National Living Wage is equivalent to 81.7% of the city’s median workplace wage. This compares with just 53.1% in Reading, 54.8% in Cambridge and 56.7% in Oxford.
Almost 12% of workers in Doncaster are already paid the minimum wage, while 30.5% earn no more than £1 an hour above it.
This matters to employers because increases to the statutory wage floor do not necessarily affect only employees being paid exactly the minimum.
Businesses may also need to increase wages for employees immediately above the minimum to maintain differences between roles, responsibilities and levels of experience. This is sometimes described as a wage spillover effect.
The same issue is particularly visible in Southend, where 30.5% of workers earn within £1 of the minimum wage, and Sunderland, where 12.1% of workers are directly on the minimum wage.
One national wage, very different local impacts
The findings highlight an important geographical divide.
The National Living Wage is identical across the UK, but local wages and productivity are not.
Centre for Cities found that the minimum wage is now above two-thirds of median local earnings in 45 of the 62 British cities and large towns it studied.
In Doncaster, Wigan and Sunderland, it is around four-fifths of the typical local hourly wage. In higher-paying locations such as Cambridge, Oxford and Reading, the figure is substantially lower.
That means an identical increase in the National Living Wage can represent a much larger change to the existing wage structure of a lower-paying local economy.
For SMEs operating on relatively narrow margins, particularly in sectors with large workforces, that difference can be significant.
The cost of employing someone has risen beyond wages alone
Businesses have also had to absorb changes to employer National Insurance.
Since April 2025, the employer National Insurance rate has been 15%, up from 13.8%, while the threshold at which employers generally begin paying it fell from £9,100 to £5,000. The maximum Employment Allowance was increased to £10,500 and its previous £100,000 eligibility restriction was removed, providing relief to many eligible smaller employers.
For illustration, an employee working 37.5 hours a week at the National Living Wage earns approximately £24,785 a year in 2026, around £975 more than at the 2025 minimum wage.
Where employer National Insurance is payable, the wage increase alone also adds approximately another £146 in employer NI, taking the direct annual increase to around £1,120 per full-time employee, before considering pension contributions or other employment costs.
Across a workforce of 20 employees, relatively small annual increases per employee can therefore quickly translate into tens of thousands of pounds of additional payroll expenditure.
Why this matters for growing SMEs
Higher wages are not necessarily bad for businesses.
Better pay can support employee retention, improve recruitment and put more money into local economies.
The difficulty arises where employment costs increase faster than a business can increase productivity, prices or revenue.
That can create a cash-flow problem even for otherwise healthy businesses.
Companies may respond by delaying recruitment, reducing working hours, increasing prices or postponing investment. In some cases, however, cutting investment can make the underlying productivity problem harder to solve.
Access to appropriate finance can provide another option.
A business waiting for customers to pay invoices may use invoice finance to improve the timing of cash coming into the company. A revolving credit facility can provide additional flexibility around payroll and other short-term working-capital requirements.
For businesses looking to become more productive, asset finance or structured business funding can also help fund machinery, technology, software or equipment without requiring the entire cost to be paid upfront.
Finance cannot make an unsustainable wage bill sustainable indefinitely. But where the underlying business is profitable and the issue is timing, growth or investment, additional working capital can help prevent short-term cost pressure from becoming a barrier to expansion.
John Carter, Managing Director of British Business Funding, said:
“Wage increases affect every business differently. For an employer in an area where salaries are already substantially above the minimum wage, another increase to the wage floor may have a relatively limited impact.
“But in places where a large proportion of employees earn at or close to the minimum, the effect can spread across much more of the workforce.
“For SMEs, the challenge is often cash flow rather than the wage increase in isolation. Payroll has to be met every month, while customers may not pay invoices for 30, 60 or even 90 days.
“Businesses shouldn’t use borrowing simply to cover an underlying profitability problem. But where a company is growing, investing or waiting for revenue to catch up with expenditure, having the right working-capital facility can give it considerably more flexibility.”
Methodology
British Business Funding analysed the May 2026 Centre for Cities Pay Check: The Minimum Wage in British Cities dataset.
The underlying figures use the ONS Annual Survey of Hours and Earnings and Low Pay Commission data and measure workplace wages within Primary Urban Areas.
Locations were restricted to places appearing on the Cabinet Office’s official list of cities.
Three measures were used:
- Local minimum-wage bite: the 2026 minimum wage as a percentage of median local workplace earnings.
- Minimum-wage coverage: the percentage of workers earning the minimum wage in 2025.
- Minimum-wage spillover: the percentage earning no more than £1 an hour above the minimum wage in 2025.
Each measure was normalised on a 0-to-100 scale across the qualifying cities and given equal weighting. The average of the three measures forms the BBF Wage Pressure Score.
The analysis measures local exposure to wage pressure and should not be interpreted as a direct survey of SME payroll costs. Northern Ireland is not included because the underlying Centre for Cities Primary Urban Area dataset covers Great Britain.