Ahead of the upcoming increases in National Insurance contributions and the National Minimum Wage, there is a sharp decline in hiring confidence among UK employers – with widespread plans to cut hiring while increasing redundancies.
According to a new report from the CIPD, just under a third (32%) of businesses expecting higher employment costs plan to reduce staff numbers through redundancies or hiring fewer workers.
The report also indicates a decline in overall employer confidence, reflected in the net employment balance – a measure of the difference between firms expecting to increase and decrease staffing levels. This figure dropped from +21 last quarter to +13 this quarter, with private sector confidence falling from +24 to +16.
Peter Cheese, Chief Executive at the CIPD, said, “These are the most significant downward changes in employer sentiment we’ve seen in the last ten years, outside of the pandemic. Employer confidence has been impacted by planned changes to employment costs, and employment indicators are heading in the wrong direction. Businesses have had time to digest these impending changes, with many now planning to reduce headcount, raise prices and cut investment in workforce training.”
Key Sectors Facing Pressure
Certain industries have seen a particularly steep decline in hiring confidence. The net employment balance in retail dropped from +23 to +1, transport and storage fell from +28 to +11, and hospitality, including hotels and catering, declined from +18 to +7. Despite large-scale infrastructure projects, construction also saw a decline, with its employment balance falling from +43 to +27.
Redundancy intentions have increased across sectors. In the private sector, the proportion of businesses planning redundancies rose from 22 percent last quarter to 27 percent. Overall, one in four (25%) employers expect to make redundancies in the first quarter of 2025, up from 21 percent last quarter.
Nine in ten businesses anticipate higher employment costs due to NICs changes, with 43 percent expecting a significant increase in costs due to the rise in NICs rates. Additionally, 40 percent believe the reduction in the secondary threshold will substantially impact costs. The rise in the National Living Wage to £12.21 is another area of concern for employers, with 24 percent of employers stating it will increase their costs significantly.
Business Response to Rising Employment Costs
As employment costs rise, businesses are adjusting their strategies. The report shows that 42 percent of employers plan to increase prices, a figure that rises to 68 percent among retailers. Additionally, 37 percent are focusing on improving efficiency and productivity, while 32 percent are considering reducing staff through redundancies or limiting hiring. Some businesses (21%) are looking to automation to mitigate costs.
Training budgets are also under pressure, with 19 percent of employers planning to cut training expenditure. Cheese noted that this could have long-term consequences.
“There are worrying signs some employers are shelving plans to hire new staff or train their people, or they expect to scale back plans to expand their businesses,” Cheese said. “However, the introduction of additional employment costs is also focusing some employers to look at introducing automation or raising productivity in other ways; activity the Government should look to support.”
Calls for Government Action
The CIPD is urging the Government to provide greater support for businesses to help them manage rising costs while maintaining investment in workforce skills and productivity.
“The Government needs to set out more clearly how it is going to work with employers to support greater business investment in workforce skills, management capability and technology adoption across all sectors of the economy that can help boost productivity,” Cheese said. “This means fast-tracking consultation with employers on the design of the new Growth and Skills Levy and other changes to skills policy to help organisations upskill their workforces and to tackle technical skills shortages holding back the economy.”
Some businesses in the public sector remain optimistic about future recruitment and retention. The report found that 58 percent of public sector employers expect additional government funding to ease hiring difficulties, while 56 percent believe it will help with retention.
Recruitment challenges persist across industries, with a third (33%) of employers reporting hard-to-fill vacancies. In compulsory education, this figure rises to 49 percent, while 46 percent of employers in construction report similar difficulties.
The median expected basic pay increase for the next 12 months remains at 3 percent, consistent with the previous three quarters. However, expected pay awards in the public sector have fallen to 2.5 percent, following a rise to 4 percent last quarter after the Chancellor’s announced pay increases in July 2024.
