Nearly nine out of 10 employers (86%) say that the prospect of being taken to the employment tribunal for dismissals during probationary periods under ‘day-one’ unfair dismissal rights will make them more cautious about hiring.
The annual employment trends survey by the Confederation of British Industry and Pertemps, published today, highlights a UK labour market facing mounting pressures as businesses tackle rising costs, regulatory changes, and an increasingly challenging economic environment.
Employment Rights Bill
Employment Rights Bill U-turn unlikely, say legal experts
With falling vacancies and rising unemployment, business confidence in the UK labour market remains low, according to the CBI survey.
Companies are warning that the cumulative cost of doing business is a major threat to the UK’s current and future competitiveness with jobs, investment and future pay rises at risk.
The CBI surveyed 407 firms, 80% of which were SMEs with less than 250 employees.
It found that 86% of respondents believe the UK labour market is a less attractive place to invest and do business compared with five years ago, with 54% ranking it as ‘much less’ attractive.
Labour costs ranked as the top threat to current labour market competitiveness, selected by 73% of respondents. The impact of employment regulation on flexibility ranked second (65%), followed by access to skills (58%).
The main drivers of concern about the cost of employing people were national insurance contributions and the Employment Rights Bill, selected by 69% and 53% of respondents, respectively.
Seventy-eight per cent believe the Employment Rights Bill will hit growth, investment, jobs and/or discretionary employee benefits. This concern has grown since last year, when roughly half of firms (54%) were worried.
A quarter (27%) of businesses expect their organisation to be smaller than it is today in 12 months’ time, roughly the same as the proportion intending to grow (26%).
‘Undermining competitiveness’
Matthew Percival, CBI future of work and skills director, said: “These findings send a stark message: unless policymakers take urgent steps to ease regulatory and cost pressures, the UK risks undermining its own competitiveness. Businesses want to invest, hire, and grow – but they need a stable and supportive policy environment to do so.
“Labour costs, regulation, and skills investment are critical areas where action is needed to safeguard the UK’s labour market resilience and attractiveness over the next five years and beyond.
“Businesses recognise that the Employment Rights Bill is happening. The key question is how to deliver it in a way that builds consensus. A pro-growth landing zone is possible, but it requires changes to the Bill to make probations meaningful, ensure a practical approach to managing variable hours, and a reasonable balance between the rights and responsibilities of employers and trade unions.”
Only 11% of businesses intend to offer pay rises above inflation at their next pay review, while 41% plan to provide pay increases in line with inflation. One in nine respondents (11%) are considering pay rises below inflation.
While most (54%) intend to maintain their current level of investment in skills over the next twelve months, more intend to cut it (23%) than increase it (13%).
Growth and skills levy
The CBI survey also highlighted how the current approach to Growth and Skills Levy reform is hurting businesses’ ability to invest in skills and deliver training. Two-thirds (67%) believe that the absence of a clear roadmap for eligible training courses will hinder workforce planning, while 50% believe that continued rigidity in the levy is stopping their organisation from being able to deliver training to address skills gaps.
Carmen Watson, chair of Pertemps, said: “The recent government reshuffle offers a timely chance to reset the growth agenda and provide the certainty businesses need. On skills, one of the most effective steps would be to give clarity on which types of non-apprenticeship training will be eligible for funding from April 2026.
“With 67% of respondents saying the current uncertainty is holding back training plans, greater transparency would help firms to invest in the people and skills that will drive the UK’s competitiveness in the years ahead.”
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