Hopes for a sustained recovery in UK hiring “hang in the balance” as employer sentiment is hit by concerns over rising payroll taxes and incoming workers’ rights legislation, according to a new report by the Recruitment & Employment Confederation (REC).
In its latest survey released on Thursday, the REC found that while short and medium-term hiring intentions improved in the three months to April, broader economic confidence among employers deteriorated, raising questions over whether a long-anticipated labour market rebound will fully materialise.
The REC’s economic confidence index plunged by 12 points over the quarter to a net minus 35, signalling deepening concerns about Britain’s growth prospects. Meanwhile, the index measuring employer investment intentions also fell, by five points to minus 9.
Kate Shoesmith, deputy chief executive of the REC, said businesses were torn between cautious optimism and mounting risks: “Firms clearly see potential, but they also see risk. While improving hiring intentions suggest a jobs comeback this year, the extent of any bounce back depends on the economic and political headwinds on firms easing a fair bit.”
The hiring outlook improved despite April ushering in two major cost increases for employers. The main rate of national insurance contributions (NICs) rose from 13.8 per cent to 15 per cent, and the earnings threshold at which NICs are paid fell from £9,100 to £5,000. Combined, these changes represent a £25 billion increase in payroll taxes. The minimum wage also jumped by 6.7 per cent last month, adding further pressure, particularly on sectors like hospitality, care and retail which rely on lower-paid, part-time staff.
Although private sector surveys have indicated that employers may cut hiring to offset rising NICs, some economists have warned that such surveys may overstate the impact by focusing too heavily on sentiment rather than concrete hiring decisions. The NICs increase, they argue, is worth less than 1 per cent of GDP and may be absorbed by many businesses.
The mood in the business community has also been unsettled by the government’s Employment Rights Bill, which is making its way through the House of Lords. The legislation, described by ministers as a generational upgrade to employment law, aims to improve sick pay access, encourage trade union membership, and offer greater predictability over working hours.
While the Trades Union Congress has welcomed the bill as a long-overdue boost for workers, business lobby groups including the CBI have warned it could act as a brake on hiring by raising compliance costs and red tape for employers. These concerns have prompted calls for careful implementation.
“Getting the Employment Rights Bill right will help,” Shoesmith said. “Firms want reassurance that the application of the bill avoids tying businesses and workers up in greater costs and complexity.”
Despite the mixed signals, official data still shows that the labour market remains relatively resilient. The latest figures from the Office for National Statistics (ONS) show vacancies at 761,000 in the three months to April — well below the 1.3 million peak seen in mid-2022, but still high by historical standards. Unemployment stands at 4.5 per cent, though the reliability of ONS figures has been questioned due to falling survey response rates.
The REC report suggests the next few months will be pivotal. GDP grew by a stronger-than-expected 0.7 per cent in the first quarter, fuelling hopes of a broader recovery. But with employer confidence sliding and policy uncertainty mounting, the future of Britain’s jobs market may hinge as much on politics as economics.
As Shoesmith put it, “The bounce-back is possible, but far from guaranteed.”
