Following Chancellor Rachel Reeve’s first Budget APSCo and APSCo OutSource have already raised concerns that the NICs rise has the potential for negative consequences on recruitment and, subsequently, economic growth.
“While employers’ contributions to NICs hasn’t been increased by as much as was speculated, we are worried that this has the potential to inadvertently hinder permanent and temporary recruitment,” said Tania Bowers, Global Public Policy Director at APSCo. “For the UK’s SMEs in that economically critical 10-250 employee banding the financial burden this places on them will only reduce the investment they can channel into new hiring.
“The overall cost of engaging contractors is also a concern, particularly for the many SMEs in the recruitment sector who won’t be in a strong bargaining position to pass the additional tax rate on their payroll up their supply chains to all their clients,” Bowers adds. “When we add this to the extra costs of hiring that are being built into the employment rights reforms, it makes conditions for business, recruitment and economic growth difficult. A more positive macro-economic environment, given the infrastructure investments announced, may alleviate some of the pain and create the dynamic landscape that the Chancellor is striving for, but it is a question of timing.
Bowers says she is encouraged to see investment being funnelled into sectors and industries that are in direct need of reform to boost skills. “The skills required simply don’t exist in the domestic market and it is important that this is reversed,” she said. “If we look at construction, for example, our latest data shows a decline of applications for permanent and contract positions of 35% and 41% respectively between September 2023 and September 2024. This is despite vacancies stabilising and is indicative of a growing gap between the supply and demand of skills.”
Neil Carberry, Recruitment and Employment Confederation (REC) Chief Executive was sympathetic to the Chancellor’s situation: “The Chancellor had a difficult job today, navigating a challenging fiscal picture while maintaining support for the only thing that will improve her view – economic growth,” he commented. “Growth is delivered by businesses, and the mix of tax rises and other costs imposed on firms by the government will make getting there harder. Many business leaders will be feeling concerned about the direction of travel this evening.”
According to Carberry, reassuring businesses will be about ensuring the additional contribution they are making will flow back to them in the form of better fundamentals in the economy, for example the ease of doing business, shorter waiting lists, easier planning, new infrastructure and better access to low-cost investment capital.
“We were pleased to see the labour market feature in the Chancellor’s comments,” added Carberry. “Additional funding to support labour market inclusion and address inactivity is welcome – but government programmes are always more effective when they work hand-in-hand with the private sector. Private sector employment businesses place over a million people into work every day – and are ready to help. If people are the engine of the UK’s growth, we need to invest in the workforce and the strategy that allows people to work the way they need to work.”
Carberry also commented on the Chancellor’s intention to address contractor’s compliance: “The Chancellor is right to tackle issues around umbrella company compliance,” he said, “but has chosen the wrong tool. Employment businesses are already some of the more heavily regulated businesses in the country, and responsibility for supply chain compliance will stretch them. Yet umbrella companies themselves are not regulated. This is long overdue and would deliver a much more level playing field.”
