Confidence among UK employers has taken a significant hit, with a new report revealing that one in three businesses are planning to cut jobs in 2025 due to rising employment costs.
A new survey of over 2,000 employers found that Chancellor Rachel Reeves’s planned increases to National Insurance Contributions (NICs) and the national minimum wage are heavily impacting hiring decisions.
The Chartered Institute of Personnel and Development (CIPD) warned that these changes could stifle growth, with many businesses planning redundancies or scaling back recruitment to offset rising expenses.
Peter Cheese, chief executive of CIPD, said: “These are the most significant downward changes in employer sentiment we’ve seen in the last 10 years, outside of the pandemic. Employer confidence has been impacted by planned increases to employment costs and employment indicators are heading in the wrong direction.”
From April, larger businesses will face increased National Insurance Contributions, with thresholds dropping from £9,100 to £5,000 and rates rising from 13.8% to 15%. The British Retail Consortium has estimated that this change could cost UK retailers £2.33 billion annually.
The CIPD’s study revealed that 33% of businesses expecting higher employment costs intend to reduce their workforce, while two in five plan to raise prices to manage the financial burden.
Mr Cheese noted that sectors like retail and hospitality, which employ large numbers of people, will be particularly affected.
He added: “If the Government’s plans are to succeed, it’s vital they set out how they will help businesses to support growth and investment, and it’s important this support is felt across the economy.”
Meanwhile, a separate survey showed a sharp decline in confidence among small businesses.
The Federation of Small Businesses (FSB) found that in the fourth quarter of 2023, small business confidence was at its lowest point outside of the pandemic.
A survey of nearly 1,400 small firms revealed that those in accommodation and food services were especially pessimistic, citing barriers to growth such as economic challenges, high taxes, and labor costs.
Tina McKenzie of the FSB said: “Small firms are understandably nervous about their prospects as 2025 gets under way.
“The upcoming Employment Rights Bill is a major source of stress for small firms, with nine in 10 business owners saying they are concerned about its introduction. This is undoubtedly contributing to the very subdued confidence levels seen in our research.”
The Employment Rights Bill, introduced to Parliament in October 2024, aims to overhaul employment laws to create a fairer workplace.
Key provisions include banning zero-hours contracts, mandating sick pay from the first day of illness and enhancing protections against unfair dismissal.
However, small business owners are concerned about the impact on operational flexibility, particularly proposed changes to unfair dismissal rules that would allow employees to take their employer to a tribunal from day one on the job.
She added: “On the plus side, the Government’s plans to reduce late payment – a long-standing source of financial strain for small firms – cannot come soon enough.”
