Private sector hiring intentions have plummeted to their lowest level since the pandemic, with just 57% of employers planning to recruit in the next three months. This is down from 65% in autumn 2024, as businesses struggle with mounting employment costs, according to the CIPD’s latest Labour Market Outlook.

The survey of more than 2,000 employers reveals a concerning picture for the UK labour market, with rising National Insurance contributions (NICs) emerging as the primary driver of business pessimism. Some 84% of UK organisations report their employment costs have risen since NICs changes took effect in April 2025, with nearly one-third (32%) experiencing significant cost increases.

Young Workers Bear the Brunt

Perhaps most troubling is the disproportionate impact on youth employment. Despite under-21s being exempt from employer NICs, nearly four in ten (37%) employers that hire young people report that NICs changes have substantially increased their employment costs, compared with just 23% of employers that don’t recruit young workers.

This finding highlights the interconnected nature of employment costs, where businesses with diverse age profiles face compounded pressures that ultimately affect their willingness to hire entry-level talent.

James Cockett, senior labour market economist at the CIPD, warned that this trend threatens the government’s broader economic objectives: "Business confidence is faltering further under rising employment costs – and it’s sectors like hospitality and those offering vital opportunities to young people that are being hit hardest."

Sectoral Variations in Impact

The hospitality and care sectors have been particularly affected, with half (50%) of employers in these industries reporting that NICs and wage changes have substantially increased their costs. This is more than double the rate across other sectors, reflecting these industries’ reliance on lower-paid workers and younger demographics.

When asked to identify the single biggest cost increase over the past year, 36% of employers cited NICs rises, significantly outweighing energy costs (15%) and minimum wage increases (12%).

Employment Rights Bill Concerns

The CIPD has raised concerns that upcoming Employment Rights Bill measures could compound existing challenges. The organisation warns that new statutory probationary periods and dismissal processes for new staff must be carefully designed to avoid creating additional barriers to youth recruitment.

"If new employment laws increase the risk and complexity of recruiting and managing new staff, employers are less likely to take a chance on young workers with limited experience and more development needs," Cockett explained.

Wider Labour Market Pressures

The employment landscape shows additional signs of strain beyond the private sector. Public sector confidence is also muted, with more employers expecting workforce reductions than growth. The net employment balance stands at -6, with particularly negative outlooks in public administration (-12) and compulsory education (-8).

Healthcare and care services face acute recruitment pressures, with the net employment balance falling sharply from +23 to -2 this quarter – a decline likely exacerbated by recent immigration policy changes.

Despite these challenges, pay expectations remain relatively stable, with median basic pay increases holding at 3% for the fifth consecutive quarter across both public and private sectors.

Call for Government Action

The CIPD is urging the government to prioritise youth employment support and ensure the Employment Rights Bill doesn’t create additional recruitment barriers. Cockett emphasised the strategic importance of maintaining business confidence: "We simply cannot afford for businesses to lose confidence in employing people if the government’s Get Britain Working agenda is to be successful and the economy is to grow."

The organisation stresses that investment in apprenticeships and training opportunities for young people remains crucial for building sustainable talent pipelines, even as immediate cost pressures mount.