UK Labour Reforms Prompt Hiring Slowdown Among Employers, Survey Finds

More than one in three UK employers plan to reduce permanent hiring in response to new labour law reforms, according to a survey that highlights growing caution in the jobs market. The findings suggest that changes introduced under the government’s Employment Rights Act are beginning to influence recruitment decisions across multiple sectors.

The survey, conducted by the Chartered Institute of Personnel and Development, gathered responses from 2,082 employers between mid December and mid January. It found that overall hiring intentions are at their lowest level outside the first year of the COVID pandemic. The data points to continued fragility in the labour market as businesses weigh rising costs and regulatory adjustments.

The Employment Rights Act, approved by parliament in December, forms part of the government’s broader effort to strengthen worker protections. While some original proposals were moderated during the legislative process, including elements related to unfair dismissal protections for new employees, several key measures remain. These include changes to sick pay entitlement, tighter rules around zero hours contracts and expanded union rights.

According to the survey, three quarters of employers expect the reforms to increase employment costs. More than half anticipate a rise in workplace conflict as companies adapt to the new framework. Employers also expressed concern that official cost estimates do not fully capture the financial burden associated with implementation.

The government has previously estimated the headline cost of the reforms at around one billion pounds. However, business leaders argue that indirect expenses such as updating internal policies, training managers and communicating changes to staff may significantly exceed that figure.

Ben Willmott, head of public policy at the CIPD, said the findings underline the importance of continued consultation between policymakers and employers. He noted that some aspects of the legislation will be determined through secondary rules, leaving scope for adjustment. Employers are urging the government to ensure clarity and flexibility as these details are finalised.

Despite the concerns around hiring, wage growth appears to have stabilised. The survey showed that the median basic pay award remained at 3 percent for the seventh consecutive quarter. This consistency suggests that while employers are cautious about expanding headcount, they are maintaining steady salary increases for existing staff.

Economists have warned that a sustained slowdown in recruitment could weigh on broader economic growth. The UK labour market has shown signs of cooling in recent months, with vacancies declining from post pandemic highs. Analysts say further reductions in hiring plans could reinforce that trend, particularly if businesses continue to face uncertainty over regulatory costs and demand conditions.

The government has argued that stronger worker protections will create a more stable and fair labour market over time. However, the latest survey indicates that many employers remain concerned about short term pressures as they adjust to the new legal environment.