UK Hiring Slows: Reeves Faces Pressure to Ease Employer Costs

The fragile green shoots of recovery in Britain's jobs market may already be wilting before they've had a chance to take root. A recruitment industry survey showing the slowest hiring declines in nearly two years has prompted business leaders to issue an ultimatum to Rachel Reeves: ease the cost burden on employers, or watch this tentative stabilisation collapse. But the headline figure requires careful reading—any score below 50 represents contraction, meaning hiring is still declining, just at a slower rate.

The KPMG and REC report recorded a permanent placements index of 49.2 in February, up from January's 46.9 and the closest the figure has been to the neutral 50.0 threshold since March 2023. This is deceleration of a downturn, not the turnaround the headlines might suggest. Business groups aren't celebrating—they're warning.

Neil Carberry, chief executive of the Recruitment and Employment Confederation, said the figures were 'by no means a source of unalloyed celebration' and called for policies focused on reducing business costs. Jon Holt, KPMG's group chief executive, struck a similar note, arguing that whilst the jobs market showed its strongest improvement in three years, stability was needed to avoid 'sustained shocks'. Neither needed to spell out explicitly the source of their concern.

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The £25bn elephant in the room

Last October, Reeves announced a £25bn increase to employer National Insurance contributions in her first Budget—a decision that has since become the most frequently cited explanation for dampened hiring intentions across the private sector. The timing creates an awkward collision for the Chancellor. Just last week, she delivered her Spring Statement reaffirming that Labour had the 'right economic plan' even as the Office for Budget Responsibility slashed growth forecasts for 2026.

The message was clear: the government isn't wavering. Yet here are industry voices saying the nascent recovery won't hold without cost relief, setting up a potential standoff between fiscal commitments and economic reality.

Official forecasts show unemployment peaking later this year from its current 5.2 per cent before falling to 4.1 per cent by the end of the parliament, according to the OBR. JP Morgan sees things rather differently. The Wall Street bank expects the UK unemployment rate to reach 5.5 per cent in coming months—exceeding the pandemic peak and suggesting the Treasury's projections may be optimistic at best.

Geopolitical storms cloud the outlook

Complicating matters further is the fact that British businesses aren't just wrestling with domestic policy choices. They're trying to navigate what Holt described as the 'new normal' of resilience against external shocks beyond their control. Over recent weeks, those shocks have arrived in rapid succession.

Donald Trump's erratic tariff threats—first a 10 per cent levy on NATO allies over Greenland defence, then floating a 15 per cent charge on trading partners after his April tariffs were struck down by the Supreme Court—have left exporters scrambling. Shevaun Haviland, director general of the British Chambers of Commerce, warned firms to prepare for the worst, noting the impact on UK imports would be 'significant'. The escalating conflict between the US-Israel alliance and Iran has sent energy prices surging, reviving fears of a cost-of-living crisis just as inflation had begun to stabilise.

Gas and oil markets have reacted sharply, threatening to squeeze both household budgets and business margins simultaneously. Holt suggested these geopolitical tensions could cause the jobs recovery to 'stall again in the near term as chief executives take stock'. What's interesting here is how quickly the ground can shift—February's data might already feel outdated by the time March figures arrive.

A political gamble with limited room for error

The fundamental tension is straightforward. Businesses insist they need lower costs to justify expanding payrolls. The government insists it needs higher revenues to fund public services and meet its fiscal rules. Someone's arithmetic has to give.

Carberry framed the challenge in terms of confidence: 'There is cash in the system to spend if consumers and businesses feel better'. His prescription was equally blunt—tackle this by reducing the cost of doing business, which would in turn address the rising cost of living. That's the business case. The political calculation is more complex.

Reversing or softening the employer National Insurance increase would require Reeves to admit error just months after implementation, undermining her authority. Maintaining the policy despite mounting evidence of hiring damage risks presiding over an unemployment rate that exceeds pandemic levels.

The February recruitment figures suggest the worst may be behind us, but 'behind us' still means contraction. The question facing Reeves isn't whether businesses want relief—they've made that abundantly clear. It's whether she can afford to provide it without unravelling her Budget arithmetic, and whether she can afford not to if JP Morgan's unemployment projections prove more accurate than the OBR's.

The gap between those two forecasts—4.1 per cent versus 5.5 per cent—represents hundreds of thousands of jobs and the political viability of Labour's economic strategy. The Chancellor must navigate an unemployment rate that could exceed pandemic levels whilst maintaining fiscal credibility and party unity.

More articles by Ross Williams