Recruitment hit by budget uncertainty in October


The uncertainty surrounding last week’s Autumn budget has intensified the negative trend in recruitment, as businesses put their hiring plans on hold.

The latest Jobs Outlook data released by the Recruitment and Employment Confederation and KPMG revealed that permanent placements in the UK have been declining at their highest rate since March and for more than two years.

The billings for temporary jobs also fell at their fastest rate in seven months.

Recruitment consultancies report each month on the number and billings of temporary or contract workers placed, as well as those who were hired permanently.

A reading above 50 indicates a rise in the index compared to the previous month. Numbers below 50 indicate a decrease.

The permanent placement index was 44.1 in the UK, while billings for temporary staff were 46.3. Panellists reported that clients were freezing their recruitment due to a lack in business confidence. Some firms attributed this to the uncertainty caused by the first Budget of Labour.

The government presented its Employment Rights Bill in October, which included proposals for day-one unfair dismissal rights and restrictions on zero-hours contract use. Meanwhile, the Budget announced an increase of national insurance contributions from 13.8% up to 15% for employers and a decrease of the minimum threshold at which employers begin paying NI, from PS9100 to PS5,000.

Neil Carberry said that the figures were a timely reminder of the fact that employers’ demand for new employees has weakened in the wake of the election, though the picture is still resilient compared to the pre-pandemic period.

The data for this month shows some positive signs, such as a more robust performance in London – which is usually a bellwether. The future is uncertain. Firms need to be convinced to invest in light of recent changes made to the NI thresholds and minimum wage, as well as upcoming changes to employment laws.

Carberry said: “Firms are looking to the government for a clear and stable growth plan, as well as detailed regulatory changes which will enable them rather than discourage them over the next few weeks.

“Temporary employment is an excellent way to help people get out of inactivity. The threat of new employment legislation that undermines opportunities for workers needs to be addressed.”

Jon Holt said that uncertainty over the Autumn budget caused businesses to continue putting hiring plans on hold throughout October, leading to the steepest reduction in permanent staff appointments ever since March. Employers didn’t use temporary staff to fill in the gaps. These appointments saw their largest reduction in seven-months.

The starting salaries for permanent roles increased again in October. However, the rate of inflation continued its recent decline, dropping for the fourth consecutive month to its lowest level since February 2021. The increase in pay was a result of the competition to hire high-quality candidates for key roles.

Holt said that while businesses continue to be willing to pay higher salaries for top talent, the increasing pool of candidates available means that salary inflation is at its lowest since early 2021. The Monetary Policy Committee of the [Bank of England] will have taken this trend into consideration at their meeting on Thursday.

Some chief executives believe that the impact of tax increases announced in the Budget last week on businesses could lead to a further slowdown in hiring, as companies struggle with the extra costs. Businesses may be reassured by the Office for Budget Responsibility’s forecast of a rise in productivity and a Budget which signals a more long-term approach to policy.

Sainsbury’s, BT and other employers have explained the costs that they will face due to the 6.7% increase in the national living wage as well as the increased employer’s NI contribution.

BT reported that it would incur additional costs of approximately PS100 million. Simon Roberts said, Sainsbury’s chief executive said, the NI increase will cost an additional PS140 million in the next financial year. The supermarket will “attempt to mitigate the impact”, but retail’s narrow margins mean “there isn’t enough capacity to absorb the unexpected cost inflation coming at us so fast”.

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