As almost 60% of agencies plan for an April shower on recruitment, chancellor Rachel Reeves is told, ‘If you make a mistake you should own up.’
IT contracting experts are all but asking how much damage would be enough damage for the chancellor to call off her employer NICs hike.
Deutsche Bank estimates that 100,000 jobs could be lost in the UK due to Rachel Reeves’ 1.2% increase from April 6th.
The Bank of England says 54% of firms it polled since the increase expect to hike prices, and cut hiring, due to the £26billion tax raid.
‘54-month low in demand for IT contractors’
The Recruitment & Employment Confederation showed on Monday that demand for tech skills on a freelance basis is at a 54-month low.
Also pointing the finger at employer National Insurance of 15% in 2025-26, the CBI says hiring intentions have now sunk to covid-levels.
Alongside a higher National Minimum Wage and a £5billion workers’ rights boost, Reed says “tens of thousands” of jobs may be offshored on the back of the higher employer NI costs.
‘Six in 10 agencies expect a reduction in hiring’
Also yesterday sounding concerned about recruitment, CV-Library says most agencies now foresee a hiring slump — again thanks to the 13.8% levy increasing in 117 days.
“Higher employer NICs announced in the budget [is] having an impact on business confidence,” the UK’s largest independent job site told IT Contracting.com.
CV-Library’s CEO Lee Biggins continued: “Almost 60% of recruiters we surveyed expect a reduction in hiring as a result [of Reeves’ employer NICs changes].
“That’s worrying news…[given that we are] already [in a] depressed job market….[evidenced by] a 21% drop in IT roles advertised year-on-year.”
‘Average employer hit by NICs changes faces a £26k increase’
Problematically for Biggins, and anyone else who might want higher Employer National Insurance rethought, Reeves sounds unapologetic.
According to the Office of Budget Responsibility, the average employer who will lose out due to higher National Insurance will see their HMRC bill inflate by £26,000.
While “employer” national insurance sounds like an ‘employer-only’ issue, OBR warns that 60% of the cost in the first year of application is set to be passed onto employees.
‘Key drag’
Annually, that means an annual tax increase “in excess” of £800 per employee, OBR estimates.
But told last month by the Treasury Committee that the Office of Budget Responsibility concludes that her increase to employer NICs is a “key drag” on the UK’s growth forecast, the chancellor said:
“I am not going to dispute the independent analysis of the Office for Budget Responsibility.”
‘Leave businesses to work out how to absorb it’
Reeves further told the questioning MPs: “What we have done with the increase in employer national insurance is leave it to the business to work out how to absorb it.
“Businesses are amazingly creative and have great ingenuity, and one of the things that they do really well is drive efficiency and productivity performance.
“Some of the increase in national insurance will be absorbed through efficiency and productivity gains. Some of it will be absorbed through profit.”
‘Cancelling, postponing or pausing hiring’
A recruiter for tech brands and SaaS providers says leaving businesses to “work out how to absorb” the bigger outlay to HMRC is having an unprecedented, adverse impact.
“Never have I had a period where I have had so many clients/ businesses give the same reason for cancelling, postponing or pausing hiring,” said the recruiter, David Jenkins.
Of employer NICs rising to 15%, the boss of Vertical Advantage also said: “The ripple effect of this in the UK will seriously dent growth prospects in 2025 — and beyond.”
‘If you make a mistake, you should own up, chancellor’
In its analysis (that Reeves doesn’t dispute), the OBR says the employer NICs rise from 06.04.25 will “erode [companies’] profits”.
“I was always taught that if you make a mistake you should own up, and make it good,” says contract recruitment veteran Andy Hallett, managing director of Recspand.
“I am yet to find any credible business leader who has been prepared to argue the case that a rise in employer NI…is good for business or ‘working people.’
“I genuinely think Rachel [Reeves] would garner more respect by admitting that this won’t turn out well and reverse. Even [the UK’s shortest-serving PM] Liz Truss managed that.”
‘Businesses to reconsider hiring strategies, employee mix’
Hallett observed that the chancellor reducing the threshold at which NI is paid on worker earnings, from £9,100 to £5,000 from April 6th, makes up the biggest chunk of the £26bn incoming to the Treasury.
Number-Mill founder Louise Rayner echoed: “This, more than any other measure [by the chancellor], will raise the cost of employment.
“[Lowering the secondary threshold from April 6th 2025 to £5k will] likely lead many businesses to reconsider their hiring strategies and employee mix.”
‘Employer National Insurance changes may well force the hand’
Seb Maley of Qdos believes that such a reconsideration might come back on the side of non-permanent, freelance workers.
“The hike to employer NI may well force the hand of businesses,” he says.
“With [employee] hiring costs set to increase, engaging freelancers and contractors is set to become even more attractive.”
‘Umbrella company workers, and outside IR35 contractors, hit’
But VIQU, an IT contractor recruitment agency is not convinced higher payroll costs will boost the contracting sector:
“The increasing employer National Insurance cost from 13.8% to 15% from April 2025, will hit those working through umbrella companies hard, costing an average of £17 per week,” the agency’s Nicholas Hopkins blogged yesterday.
“This combined with high corporation tax means that contractors, particularly those [using PSCs] outside IR35, will [also] have higher costs to contend with.”
‘Strategic investments in talent’
Yet Rayner, a chartered accountant, believes that employers could regard contractors as “a way of offsetting” April’s steeper NI bill, “while maintaining business productivity.”
“The takeaway?” Number-Mill’s boss asked, rhetorically.
“Businesses must navigate these headwinds by balancing cost efficiencies with strategic investments in talent and productivity.”
‘Tech staff staying in-role, leading to fewer applications’
Indirectly answering the point about ‘strategic investments in talent,’ CV-Library’s Lee Biggins offered last night: “There is some suggestion that [the currently] depressed market is encouraging IT staff to stay in-role, with fewer applications per job in November 2024 compared to November 2023.
“For IT contractors, that might have pros and cons — roles might be less competitive, but it also suggests a tighter market in 2025 if the trend continues.
“That said, there are still roles out there. Even post-Autumn Budget, there were 44,000 IT job openings in November, with the most in-demand roles in software engineering, architecture, development and security.”
‘Kick in the shins’
However, Recspand fears the chancellor’s National Insurance changes will undermine the staying power of many roles.
“I personally have had at least 10 different discussions in the last month about moving…[roles] to South Africa,” said Mr Hallett, chiming with Reed’s alert about offshoring.
“The real kick in the shins for UK workers will be that once employers have taken advantage of the cost savings [by offshoring], they will then also discover the better quality of worker that is available. And these roles will never return.”