Businesses warn rising costs and ERB threaten jobs and growth – CBI

The latest annual CBI/Pertemps Employment Trends Survey 2025 highlights a UK labour market facing mounting pressures as businesses grapple with rising costs, regulatory changes, and an increasingly challenging economic environment.

Against a backdrop of falling vacancies and rising unemployment, business confidence in the UK labour market remains low. 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. Key findings:

• 86% of respondents believe the UK labour market is a less attractive place to invest and do business compared to five years ago, with 54% ranking it as ‘much less’ attractive. 82% expect this trend to continue.
• Labour costs rank as the top threat to current labour market competitiveness and was 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 are NICs and costs coming from the Employment Rights Bill (selected by 69% and 53% of respondents, respectively).
• Nearly 8 in 10 companies (78%) believe the Employment Rights Bill will hit growth, investment, jobs and/or discretionary employee benefits. This concern has grown since last year when half of firms (54%) were worried.
• 27% of respondents expect their organisation will be smaller than it is today in twelve months’ time, slightly more than the proportion intending to grow (26%).

Rising Labour Costs

There is no doubt that the recent rises in National Insurance Contributions (NICs) and the National Living Wage have made it harder for firms to hire, invest and grow.  Taken together, the increase in NICs and the past three National Living Wage increases add up to an additional cost of over £24bn for businesses each year.

• Around three in four (73%) respondents believe labour costs are a threat to current UK labour market competitiveness. This is the first time that labour costs have ranked as the top threat to labour market competitiveness since the question was first surveyed.
• 7 in 10 businesses (69%) identify the recent NICs rise as one of the top three biggest cost threats to UK labour market competitiveness, followed by the implementation of the Employment Rights Bill (53%).

Employment Rights Bill

The government’s Plan to Make Work Pay, which includes the Employment Rights Bill (ERB), remains a top business concern.

• Nearly 8 in 10 companies (78%) believe that the Employment Rights Bill will hit growth, investment, jobs or discretionary employee benefits. This concern has grown since last year when half of firms (54%) were worried.
• The proportion who believe it is affordable has more than halved from 26% to 11%, while those feeling strongly that it is unaffordable has doubled from 23% to 48%.
• Over eight in 10 respondents (86%) say that the prospect of being taken to the tribunal for dismissals during probation due to ‘Day 1’ unfair dismissal rights will make them more cautious about hiring.

• Around two thirds of respondents believe the impact of employment regulation on flexibility is a threat to competitiveness (65%).

Moving forward, businesses want to see government build a consensus about how to deliver the Employment Rights Bill so that it supports growth.

• 79% believe that changes to benefits in kind should not be treated as fire/rehire leading to a finding of automatically unfair dismissal.
• 77% believe that the proposal to introduce a right to have a guaranteed hours contract reflective of the past 12 weeks, does not take account of seasonal peaks in demand and will lead to guaranteed hours contracts that can’t be sustained all year round.
• 69% think that compensation for short-notice changes to shifts should be proportionate to the notice given.

Investment in Jobs, Pay and Training

Cost pressures are squeezing firms’ wider investment plans for jobs, pay and training.

• 27% of respondents expect their organisation will be smaller than it is today in twelve months’ time, slightly more than the proportion intending to grow (26%).
• One in nine respondents (11%) intend to offer pay rises above inflation at the next pay review, while 41% plan to provide pay increases in line with inflation.  One in nine respondents (11%) are also considering pay rises below inflation.
• While most businesses (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%).

The survey also highlights how the current approach to Growth and Skills Levy reform is hurting businesses’ ability to invest in skills and deliver training:

• 67% believe that the absence of a clear roadmap for eligible training courses will hinder workforce planning.
• 50% believe that continued rigidity in the Levy is stopping their organisation from being able to deliver training to address skills gaps.

Carmen Watson, chairperson of Pertemps, said: “This year’s findings underline the scale of change in the UK labour market and reinforces the urgent need for policies that restore business confidence and support sustainable job creation.

“The fact that 86% of respondents feel the UK has become a less attractive place to do business over the past five years and that 82% believe it may become less attractive in the years ahead, highlights a clear opportunity for government to work with employers on a pro-growth, pro-skills agenda. Similarly, the 78% of firms who are concerned about the higher employment cost implications arising from the Employment Rights Bill underlines the importance of ensuring reforms are implemented in a way that supports investment, growth and secure, rewarding jobs.

“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.”

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 right and responsibilities of employers and trade unions.”