Nearly nine out of ten employers in the UK express significant apprehension about the upcoming ‘day-one’ unfair dismissal rights, with 86% stating that the risk of being taken to an employment tribunal for dismissals during probationary periods will make them more cautious about hiring. This concern emerges from the latest annual employment trends survey conducted by the Confederation of British Industry (CBI) in partnership with Pertemps, revealing a labour market under intensified pressure amid rising operational costs, new regulatory demands, and a challenging economic landscape.

The survey, which canvassed 407 firms, predominantly small and medium-sized enterprises, paints a troubling picture of business sentiment. A substantial majority of respondents—86%—feel that the UK labour market has become less attractive for investment and business activity compared to five years ago, with over half of these firms branding it ‘much less’ attractive. The principal threats undermining the UK’s labour market competitiveness are labour costs (cited by 73% of businesses), restrictive employment regulations impacting flexibility (65%), and difficulties in accessing skilled workers (58%).

Key drivers of cost concern include increases in national insurance contributions and the implementation of the Employment Rights Bill. More than two-thirds of businesses highlight national insurance as a pressure point, alongside 53% flagging the Employment Rights Bill. The apprehension regarding the bill’s consequences has notably intensified, with 78% now expecting it to negatively affect growth, investment, jobs, or discretionary employee benefits—a sharp rise from 54% in the previous year. Reflecting this unease, roughly a quarter of businesses anticipate downsizing within the next year, balanced by a similar proportion expecting growth, indicating a divided outlook within the market.

Matthew Percival, CBI’s director for the future of work and skills, urged policymakers to address these mounting pressures promptly. Speaking to Personnel Today, he underscored that without easing regulatory and cost burdens, the UK risks eroding its competitiveness, which would impede businesses’ willingness to invest and expand. Percival emphasised the need for a “pro-growth landing zone” in delivering the Employment Rights Bill, advocating for measures that preserve the meaningfulness of probation periods, offer practical management of variable working hours, and establish a fair balance between employer and trade union responsibilities.

Pay dynamics reveal further challenges. Only 11% of firms plan to grant pay rises above inflation in their next reviews, while 41% intend to align increases with inflation, and 11% are considering raises below the inflation rate. Investment in workforce skills appears cautious: although 54% aim to maintain current training levels, more organisations expect to cut skills investment (23%) than to increase it (13%) in the year ahead.

The survey also highlights concerns tied to the government's Growth and Skills Levy reform. Two-thirds of businesses indicated that the ongoing uncertainty about eligible training courses after April 2026 is hindering workforce planning. Half of the respondents feel that the existing inflexibility in levy regulations inhibits their ability to deliver targeted training to fulfil skills gaps. Carmen Watson, chair of Pertemps, called for the government to seize the opportunity offered by the recent cabinet reshuffle to reset the growth agenda and provide clearer direction on funding eligibility, asserting that greater transparency would empower firms to better invest in skills essential for future competitiveness.

Broader labour market data from CBI’s recent quarterly updates provide context for these sentiments. Employment rates have seen a modest increase, reaching an estimated 75% in the November 2024 to January 2025 period, with the unemployment rate edging up slightly to 4.4%. Wage growth remains relatively strong, with average regular earnings growing by 5.9% over the year to January 2025, although real-term gains after inflation adjustments are more modest at around 2.2%. Meanwhile, the number of job vacancies, while showing marginal increases on a monthly basis, remains significantly lower than the previous year, reflecting some cooling in demand for labour alongside the economic headwinds.

Overall, the combined findings from the CBI/Pertemps survey and labour market reports depict a UK business environment grappling with rising costs and regulatory uncertainty that dampen investment and growth ambitions. While a portion of companies remain optimistic about expansion, widespread concern about the impact of employment law changes and skills investment challenges casts a shadow over the medium-term outlook. The CBI’s calls for a balanced policy approach that supports both workers’ rights and business flexibility reflect a pressing need to stabilise and revitalise the UK labour market’s appeal to employers and investors alike.

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Source: Noah Wire Services