The UK’s workforce landscape is facing significant challenges, with new research from the Chartered Institute of Personnel and Development (CIPD) indicating the largest surge in redundancies in a decade, excluding the pandemic period. The Labour Market Outlook survey, which surveyed over 2,000 employers, reveals a sharp decline in hiring confidence, with nearly a third of businesses planning to reduce headcount through layoffs or by cutting back on recruitment.
This decline in hiring optimism is largely attributed to the upcoming increases in employer national insurance contributions (NICs) and the national minimum wage, both of which were announced in the October 2024 budget. Specifically, the budget set out a rise in the employer NIC rate from 13.8% to 15%, alongside a reduction in the secondary threshold for contributions, lowering the income level at which employers begin paying NIC from £9,100 to £5,000, set to take effect in April 2025.
Peter Cheese, CEO of CIPD, highlighted that the data reflects the most significant downturn in employer sentiment in the past decade, outside of the pandemic. He expressed concern that the rising costs associated with employment are pushing businesses to take measures such as reducing headcount, raising prices, and cutting investments in workforce training.
Cheese emphasized the urgency for the government to outline concrete strategies to help businesses manage these escalating costs and continue to foster growth and investment. “It is vital that ministers provide support across the economy to ensure businesses remain resilient,” he added.
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Cost-Cutting Measures and Workforce Adjustments
The survey also highlighted a range of cost-cutting strategies being employed by UK businesses. Nearly half (42%) of businesses are planning to offset rising employment costs by reducing staff numbers, while 24% are scaling back or cancelling planned investments or expansions. The survey further noted a significant drop in the net employment balance—the difference between businesses planning to increase staff and those anticipating a decrease—falling from +21 to +13 this quarter, with the private sector’s employment balance dipping from +24 to +16.
The anticipated rise in employment costs is also reflected in pay expectations, with the median expected salary increase remaining at 3%, while public sector pay expectations have dropped from 4% to 2.5%.
The Impact of Rising Costs on Hiring Confidence
Martin Drake, director of Higher People, observed that the link between rising employer costs and falling hiring confidence is undeniable. “Many business leaders and HR teams are already reassessing their hiring plans, and some are even opting not to replace staff who leave,” he noted. However, Drake warned that such measures could lead to overburdened employees, which could escalate stress and turnover, further complicating workforce challenges.
Jim Moore, an employee relations expert at Hamilton Nash, described the rise in national insurance and minimum wage rates as “just another straw for the camel’s back.” He warned that job security concerns are intensifying across many sectors, especially as redundancies and hiring freezes are becoming more common. Moore urged HR departments to be vigilant for signs of stress among employees and ensure that resources like employee assistance programs are easily accessible.
Hayley Saunders, HR technical consultant at AdviserPlus, pointed out that while many companies may need to scale back on recruitment to manage cash flow, businesses should adopt a long-term, strategic approach to workforce planning. “Cutting corners now risks creating skills shortages and recruitment difficulties down the line, which can hinder productivity and future growth,” she explained. Saunders stressed the value of investing in upskilling and reskilling employees to ensure a skilled and engaged workforce that can drive long-term success.
Sector-Specific Challenges and Redundancy Predictions
Certain industries are experiencing more acute challenges than others. For example, retail, transport and storage, hospitality, and construction have seen notable declines in their net employment balances. Retail saw its balance drop from +23 to +1, transport and storage fell from +28 to +11, hospitality declined from +18 to +7, and construction experienced a decrease from +43 to +27. These sectors are also seeing a rise in anticipated staff reductions. In the last quarter, only 11% of employers predicted staff cuts over the next three months, but this figure has now risen to 16%. Additionally, one in four employers (25%) are planning redundancies, marking the highest level of planned layoffs in a decade, outside of the pandemic.
The survey also revealed that nearly 90% of organizations expect their employment costs to rise due to NIC changes, with 43% anticipating a significant increase in costs. Furthermore, one-third of employers report difficulty filling vacancies, with certain sectors, such as compulsory education and construction, seeing rates as high as 49%.
The Government’s Role in Supporting Business Investment and Workforce Skills
CIPD’s Peter Cheese expressed concern over the growing signs that some employers are shelving plans to hire new staff, scale back training programs, or delay expansion. He urged the government to clearly articulate how it will support business investment in workforce skills, technology, and management capabilities, which are essential for boosting productivity and helping businesses navigate rising employment costs.
“The government must fast-track consultation with employers on the design of the new growth and skills levy, as well as other changes to skills policy, to help businesses upskill their workforce and address technical skills shortages,” Cheese said. He added that supporting automation and increased productivity through innovation should also be a priority for policymakers, as these strategies will help businesses maintain competitiveness despite rising employment expenses.
Looking Forward: Strategic Workforce Planning Is Key
As businesses brace for higher costs and uncertain economic conditions, it is clear that strategic workforce planning will be critical in navigating these turbulent times. Employers must balance immediate cost-saving measures with the long-term need for skilled workers, ensuring that they can continue to thrive despite the challenges presented by the changing economic landscape.
In the face of the largest redundancy surge in a decade, it is crucial that businesses, policymakers, and employees work collaboratively to foster resilience, invest in workforce development, and support sustainable growth. The government’s role in providing clarity and support for businesses, particularly around skills investment and workforce planning, will be key to navigating the uncertain future ahead.
