Recruitment is in a doom loop – there's only one thing for it, chancellor…

Independent

4 hours ago

An ill wind continues to blow through the UK economy, with the jobs market enduring particularly chilly gusts. For those in search of work, it hasn't been this cold in years, as three separate datasets, coming in a day ahead of the official Labour Force Survey being released, demonstrate. The government had better brace itself for bad news.
First up: the KPMG/Recruitment & Employment Confederation (REC) 'Report on Jobs ', which has found that "recruitment activity continued to fall sharply at the start of the third quarter' of 2025. The report also found an increase in candidate availability and, unsurprisingly, slowing wage growth, which will at least please the Bank of England. It watches the latter closely.
A similar theme emerged from the Labour Market Outlook, published by the Chartered Institute for Personnel & Development (CIPD). It found employer confidence close to its lowest level since the pandemic. The number was still, barely, in positive territory at +9, marginally ahead of the previous update (+8). But that's hardly anything to write home about.
Just 57 per cent of private sector employers plan to recruit over the next three months, compared with 65 per cent in the autumn of 2024. The CIPD also highlighted the mounting challenges facing young people. 'While employers don't pay National Insurance contributions (NICs) for workers under 21 or apprentices under 25, those who hire them were more likely to report that their employment costs have risen significantly,' said James Cockett, CIPD senior labour market economist.
Finally, we have BDO, a professional services firm. Its employment index was mired in the red, falling to 94.11 in July, its lowest reading since October 2012. It warned of a 'marked cooling in the labour market'.
All the organisations involved in compiling these surveys drew similar conclusions from their data, blaming a mixture of economic uncertainty and chancellor Rachel Reeves' decision to increase employer National Insurance contributions (NICs), which have made hiring people more expensive.
A secondary issue cited was the increase to the national minimum wage. This, and the lower threshold at which NICs now kick in, has hit businesses employing large numbers of people on relatively low wages with a double whammy. Think retailers and hospitality businesses, which have traditionally employed a lot of young people.
Did Reeves and her team not see this coming? Did they think the jobs market could just 'take one for the team' if they made enough noise berating the long-term sick, disabled, young people, older workers – you name it – for not doing enough to find jobs that just aren't there?
But let's flip the script and ask if there are any hopeful signs to be found in the data. And there might be. There was that slight improvement in the CIPD survey, while KPMG/REC reported that the decline in vacancies had slowed in July compared to the (dismal) June numbers.
Kate Shoesmith, REC's deputy chief executive, even went so far as to say that 'employers are gradually emerging from the woods, gaining optimism for their businesses and the broader economy'.
Well, maybe. But let's take Shoesmith at her word, which, to be fair, she backed up by noting some growth in permanent positions up for grabs in London. The capital remains the country's economic engine and so that is indeed an encouraging sign.
Ditto the Bank of England's risky – but welcome – decision to cut interest rates, which will not have fed through to any of these surveys yet. The KPMG/REC survey was, for example, collated before the decision was taken. Lower rates should prove helpful to the economy and lead to improved business confidence.
The limiting factor – the heavy boot that could stomp on any emerging 'green shoots' and kill them off before they get the chance to flower – is the forthcoming Budget. Concerns over what Reeves will do to plug an estimated £40bn hole in the public finances will put a lid on any potential recovery until the verdict is in. Businesses are nervous, they distrust the government, and they have doubts over its promise not to hit them again.
'The new government must grasp this greater sense of optimism with labour market reforms that are both pro-worker and pro-business, and that don't jeopardise the temporary workforce,' said Shoesmith.
There were variations on that theme from all the others. But is that a nettle the government is willing to grasp? Is it willing to replace the tin ear presented to employers with something capable of hearing what they're saying?
The mood music from Westminster is not exactly encouraging.
Take deputy prime minister Angela Rayner's plan to boost the minimum wage for younger workers. This looks like a progressive move, scrapping the 'discrimination' that sets the minimum hourly rate for those aged 18-20 at £10, compared to £12.21 for those over 21. Unfortunately, it will make this already struggling group that much less attractive to employers.
I agree with the government that work should pay. But Rayner's crusade is completely wrong-headed at a time when AI is gobbling up entry-level jobs, and employers are reluctant to hire anyone at all, let alone young people who require a high level of investment.
This policy urgently needs a rethink. And it isn't the only one if the government is to get the jobs monkey off its back.