New labour market data shows that employers need more support to invest in their workforces and boost productivity

The CIPD’s latest Labour Market Outlook, based on a survey of over 2000 UK employers, has found that many employers are scaling back plans to invest in their workforces and expand their businesses. 

In response, we’re urging the UK Government to act faster on its business support and skills policy plans.  To match the government’s growth ambitions, organisations – especially small businesses – need more targeted support to confidently plan for the long-term and invest in the skills they need to boost productivity. 

Employers plan to cut hiring and increase redundancies in light of increasing employment costs 

The Labour Market Outlook shows that hiring intentions have dropped and the number of organisations expecting to make redundancies has risen to its highest level in a decade, outside of the COVID-19 pandemic.  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).  

Employers told us that their significant 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. 

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. 
• 19% plan to cut back on training expenditure. 

How the UK Government can support business growth

For their growth plans to succeed, the UK Government must be clear on how they’ll support businesses in managing these 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. Evidence shows that training and development has a positive impact on productivity, so we’re 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. 

Shaping key debates on employment trends

Our quarterly Labour Market Outlook is an influential indicator of employment trends in the UK, which helps drive evidence-based discussions about the changing world of work. The highly respected report regularly makes the news headlines, and the latest findings featured prominently across major news outlets including the BBC, Guardian and Telegraph. Our data, insights and calls to action were reported alongside other influential business bodies – including the Federation of Small Business (FSB) and British Chamber of Commerce (BCC) – whose research also shows that employer confidence is falling.

What can employers and people professionals do to boost productivity and offset increased employment costs? 

Some employers in our survey are taking a longer-term view and responding to the increased employment costs in more positive ways:  

• 37% plan to improve efficiency and raise productivity,  
• 21% plan to introduce or increasing automation, such as AI. 

The CIPD’s advice to people professionals is to avoid knee-jerk reactions and take a proactive, long-term approach to workforce planning – assessing both your current and future skills needs. This is a big opportunity for HR, L&D and OD professionals to champion the power of a people-centric business strategy – and demonstrate how a robust people strategy can contribute directly to business success.  

In particular, we recommend that you:  

• Invest in developing your workforce and prioritise continuous learning and training to enhance adaptability, productivity and employee retention, particularly if your organisation has to make do with less.  
• Take advantage of technology and use it to empower your workforce. Embrace automation and digital tools including AI to improve efficiency, streamline processes and operations, to augment and extend the capability of your workforce.  
• If downsizing is unavoidable, follow our redundancy guidance to ensure fairness and legal compliance, and consider alternative solutions, such as redeployment, job-sharing, short-time working, and so on, where possible. 

More labour market insights: pay rises and hard to fill vacancies

Our Labour Market Outlook also asks 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%. 

We also ask about job vacancies and found that some employers continue to grapple with hard to fill vacancies – especially in the public sector and education sector.  
 
To find out more about employers' predictions for the coming months, including hard to fill vacancies and pay intentions, read the report in full.