Employer confidence falls to record low as UK employers face rising costs and uncertainty

The number of UK employers expecting to increase headcount in the next three months has fallen to a record low outside of the pandemic, as they grapple with rising employment costs and growing global uncertainties. This is according to the latest Labour Market Outlook report from the CIPD, which shows that the rate of employers expecting to increase headcount has fallen sharply among large private sector employers, and in retail in particular. In response, the CIPD is urging the government to closely consult with employers and business bodies to limit the potential impact the Employment Rights Bill could have on employer’s hiring plans as businesses face mounting external pressures.

“From April, employers across the UK have begun to feel the full effect of increases to National Insurance Contributions and the National Living Wage outlined in last year’s budget,” says James Cockett, senior labour market economist at the CIPD. “They’re also looking at the potential impact of the Employment Rights Bill on employments costs and plans, and this comes at a time of global uncertainty. Employer confidence is low which is being reflected in their hiring plans.

“The Employment Rights Bill is landing in a fundamentally different landscape to the one expected when it formed part of the Labour manifesto in summer of last year. It was always going to be a huge change for employers but they’re operating in an even more complex world now. It’s vital the government works closely with employers to balance the very real risk of reductions in investment in people, training and technology with their desire to reduce poor employment practice. The government can address employer nerves around the bill by prioritising an implementation plan with a clear phased timeline, alongside support and guidance for employers, and smaller businesses in particular.”

This latest survey of 2,000 employers from the CIPD suggests that:

• The report’s overall net employment balance (NEB) – the difference between employers expecting an increase in staff levels and those expecting a decrease in the next three months – fell from +13 last quarter to +8 this quarter. This marks a record low, outside of the pandemic, since the CIPD began collecting this measure in 2014.
• The net employment balance has fallen into negative territory in the public sector, from +3 to -4, and has continued to fall in the private sector, from +16 to +11, which is a record low outside of 2020 (the pandemic).
• One in four employers (24 percent) plan redundancies in the next three months. This is consistent with last quarter but higher than the 21 percent registered in Autumn.
• The retail and education sectors are facing acute pressure. The NEB for retail has fallen from +23 in Autumn 2024 to –19 this quarter. Just one in ten retail employers expect there will be an increase in staff levels in the next three months, with three in ten expecting a fall in staffing levels. The NEB is also in negative territory, -13 among employers in compulsory education which includes primary and secondary education, and -7 among those in non-compulsory education, which includes vocational and higher education institutions.
• Overall, 61 percent of employers plan to recruit in the next three months, down from 64 percent in the previous quarter and 67 percent in Autumn 2024.
• The fall in employers expecting to increase staffing levels in the next three months is driven by large private sector employers. Last quarter 39 percent of private sector employers expected there would be an increase in their staffing levels but this has fallen to 32 percent.

Other key findings in this quarter’s Labour Market Outlook report include:

• The median expected basic pay increase remains at 3 percent and is now 3 percent across the public, private and voluntary sectors.
• Hard to fill vacancies are being felt across the economy but are highest in the public sector. Overall, 33 percent of employers have hard-to-fill vacancies, rising to 44 percent of public sector employers with the problem being particularly acute in education.

Where organisations are making difficult decisions about their workforce, the CIPD explored employers’ redundancy plans and payouts over the past 12 months, finding that:

• A quarter of employers (27 percent) conducted a redundancy programme in the last 12 months.
• Of those, half (50 percent) offered affected workers an enhanced redundancy package, going beyond what the law requires. 41 percent offered the minimum statutory amount and 9 percent didn’t know what offer was made.
• Smaller employers (less than 250 employees) were far more likely to offer statutory redundancy pay (54 percent) than larger private sector employers (37 percent).
• Currently, workers with fewer than two years of service don’t have a legal right to any statutory redundancy pay. Just under one in five (17 percent) employers didn’t pay anything to workers in this category. However, 66 percent of employers in our sample still gave these employees something to support their financial wellbeing. A quarter (25 percent) gave statutory redundancy pay (based on their current service) and about the same number (23 percent) offered something between that and the enhanced rate offered to those with more than two years’ service.