Hiring confidence among UK employers has fallen, with the number of companies planning redundancies reaching its highest level in a decade outside of the pandemic, according to the latest Labour Market Outlook by the Chartered Institute of Personnel and Development.

The CIPD’s latest Labour Market Outlook, based on a survey of over 2000 UK employers, found that the drop in confidence is linked to the upcoming increases in employers’ National Insurance Contributions (NICs) and the National Minimum Wage, announced in October’s Budget.

The survey’s net employment balance (the difference between employers expecting an increase in staffing and those expecting a decrease within the next three months) fell from +21 last quarter, to +13 this quarter. 

The drop in confidence was even more notable in retail (from +23 to +1), transport and storage (from +28 to +11), hospitality (from +18 to +7) and construction (from +43 to +27). 

The net employment balance in the private sector dropped from +24 to +16, its lowest level in over a decade, excluding the pandemic.

Meanwhile, one in four employers (25%) are planning redundancies in the next three months, the highest level in a decade outside the pandemic.  

Nine in ten businesses surveyed expect their employment costs to increase.  Of these, 32% plan to reduce their workforce through redundancies or recruiting fewer workers; 24% are cancelling (or scaling down) plans to invest in or expand their business; while 19% plan to cut back on training expenditure. 

In terms of managing costs, employers in the survey said they are taking a longer-term view and responding to the increased employment costs in more positive ways with 37% planning to improve efficiency and raise productivity and 21% planning to introduce or increasing automation, such as AI.

“The government needs to be clear on how it’s going to work with employers across all sectors of the economy to boost productivity - by supporting greater investment in workforce skills, management capability and technology adoption,” James Cockett, senior labour market economist, CIPD, said in a press release.

The CIPD said that for their growth plans to succeed, the UK government must be clear on how they will support businesses in managing costs.

“It’s concerning that so many employers (19% of those surveyed) plan to cut back on investment in skills development at a time when skills shortages are widespread,” the CIPD stated.

The CIPD is calling for faster government consultation with employers on the new Growth and Skills Levy, alongside changes to skills policy that will incentives and enable to upskill their workforces.

The Labour Market Outlook also asked employers about their pay intentions for the coming quarter.

The median expected basic pay increase remains at 3%. Expected pay awards in the next 12 months are also stable in the private and voluntary sectors (both at 3%) but have fallen in the public sector from 4% to 2.5%.