UK businesses are preparing for the largest wave of redundancies in a decade as economic confidence plummets, with firms bracing for tax hikes set to take effect in April following announcements by Chancellor Rachel Reeves in her autumn budget.
A survey conducted by the Chartered Institute of Personnel and Development (CIPD), representing human resources professionals, found redundancy intentions among employers at their highest level in 10 years, excluding the exceptional circumstances of the Covid pandemic.
The findings come as Reeves faces mounting pressure due to weak economic data, challenging her ambitions to boost growth. Official figures recently revealed that Britain narrowly avoided a recession in late 2024, with an unexpected uptick in growth during the final quarter.
This week’s upcoming economic indicators are expected to show rising inflation and unemployment, adding to concerns among critics and Labour backbenchers who fear the government’s economic strategy is veering off track.
According to the CIPD survey, conducted in late January, many employers attributed their redundancy plans to higher national insurance contributions and a 6.7% increase in the national living wage.
In a separate survey, the Federation of Small Businesses (FSB) reported a sharp decline in confidence, compounding concerns over the economic outlook. Sentiment among small firms about the year ahead plunged from -24.4 to -64.5 on a scale where negative responses outweigh positive ones. Businesses in accommodation and food services registered the lowest confidence at -111.0 points.
The FSB survey, conducted in December, revealed that businesses were more worried about tax increases than weakening consumer demand. Many also cited concerns over the upcoming employment rights bill, expected to come into effect next year. Half of the respondents anticipated declining revenues in the first quarter of this year.
Peter Cheese, chief executive of the CIPD, described the findings as among the most significant downward shifts in employer sentiment in the past decade, apart from the pandemic period.
“Planned increases in employment costs have dented employer confidence, and key workforce indicators are moving in the wrong direction. Businesses have had time to assess these impending changes, and many are now planning to reduce headcount, raise prices, and cut back on workforce training,” he said.
Inflation is forecast to rise to 2.8% in January, up from 2.5% in December, when official figures are released on Wednesday. Labour market data expected on Tuesday is predicted to show unemployment increasing to 4.5% in December from 4.4% in the previous three-month period.
Unemployment has been on an upward trend over the past year and is likely to continue as employers halt recruitment and initiate layoffs.
Meanwhile, the British Beer and Pub Association (BBPA) reported that six pubs closed permanently each week last year, leading to approximately 4,500 job losses nationwide.
The BBPA warned that the October budget would impose an additional £650 million in costs on the industry, exacerbating challenges for publicans. “We fully support Labour’s commitment to driving economic growth and believe pubs can play a key role in delivering this boost across the UK,” said Emma McClarkin, chief executive of the BBPA. “However, this can only happen if pubs are given a fair chance to stay open.”
The FSB noted that the decline in business confidence was evident across all major sectors, with none recording a positive score.
Tina McKenzie, the FSB’s policy chair, emphasized the urgency of government action to support growth. “The subdued confidence levels seen in our research highlight just how anxious small businesses are about their future as 2025 begins,” she said.
“The forthcoming employment rights bill is a key source of stress for small business owners, with nine in ten expressing concerns over its introduction. This uncertainty is undoubtedly a major factor in the sharp drop in confidence.”
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