Businesses in London and across the UK are grappling with a pronounced slowdown in hiring activity, a trend experts attribute largely to recent tax policy changes and broader economic uncertainty. New data from KPMG and the Recruitment and Employment Confederation (REC) shows that permanent recruitment in London has hit its lowest point since the start of the year, with the city’s jobs market notably weaker than the UK-wide average. The survey highlights that permanent placements in London fell sharply, reflecting a contraction in demand for staff following April’s increase in employer National Insurance contributions, introduced by Chancellor Rachel Reeves. Temporary vacancies and billings also declined, with London’s temporary billings remaining below the expansion threshold for 17 consecutive months.

This cautious hiring environment is compounded by firms’ concerns over the volatility of the immediate economic outlook and rising employment costs. Neil Carberry, Chief Executive of REC, stressed the delicate balance businesses face: while long-term hiring intentions remain relatively strong, there is immediate hesitation as companies adjust to increased tax burdens and uncertain global conditions. Similarly, Muniya Barua, Deputy Chief Executive at BusinessLDN, urged government reassurance that businesses would not face further unexpected tax rises and called for accelerated infrastructure projects to stimulate growth and alleviate London’s housing crisis.

The impact of the October 2024 Budget, which substantially raised employer National Insurance contributions by 1.25 percentage points and lowered the threshold at which these payments apply, has been particularly significant. A poll conducted by Boston Consulting Group suggests that over half of UK business leaders plan to prioritise investment in artificial intelligence over hiring new staff as a cost-containment strategy amidst higher payroll expenses. Labour government proposals for expanded workers’ rights are expected to push employment costs even higher, prompting many executives to plan for reduced hiring through 2025.

This tightening in recruitment has been felt across sectors, with reduced vacancies observed in technology, hospitality, and healthcare according to REC’s comprehensive surveys. The number of new job placements has declined sharply, marking the most challenging market conditions since the height of the COVID-19 pandemic in mid-2020. Although overall job losses among existing employees have not surged substantially, the availability of staff for hire has increased, hinting at a potentially softer job market ahead. However, starting pay growth for new permanent roles has shown some resilience, particularly for specialised roles in fast-growing sectors, which may indicate a selective demand for high-skill talent amidst widespread hiring freezes.

Business groups have voiced growing concerns about these developments. The British Chambers of Commerce reported that nearly one-third of small and medium-sized enterprises have either cut jobs or are contemplating reductions in response to the higher social security costs. The overall business confidence has dropped to levels not seen since 2022. The Bank of England has linked the downturn in hiring sentiment to increased labour costs and wage pressures, although it has recently cut interest rates to help stimulate growth. These rate cuts, along with forthcoming government investment plans, are viewed as potential supports to help the economy rebound in the near term.

Some commentators highlight the risk that ongoing tax hikes and policy uncertainty could further dampen hiring and investment decisions, potentially slowing economic growth. While Chancellor Reeves has indicated no intent for additional large-scale tax increases, economists caution that further fiscal measures might be necessary later in the year to meet budgetary targets. Meanwhile, the public and business frustration over the economic direction under the current government reflects wider anxieties about job security and living costs.

In summary, the UK labour market is navigating a period of acute uncertainty. Employer caution, driven by increased National Insurance contributions and concerns over future tax and regulatory costs, is curtailing hiring activity and chilling wage growth for new recruits. Although pockets of strong demand for specialised skills exist, overall conditions point to a cautious, cost-conscious approach by businesses amid a challenging economic backdrop. How government policy and monetary interventions will balance these pressures remains a crucial determinant for the UK’s labour market trajectory in 2025.

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Source: Noah Wire Services