The Cost of Hiring Just Went Up – Here’s Why It Matters

May’s GDP figures show that the UK economy shrank — and while there are many possible reasons, one clear contributing factor is the recent increase in Employers’ National Insurance (ENI), introduced in April.

This change raised the cost of employing people at a time when businesses are still navigating post-pandemic challenges, cost-of-living pressures, and rising operational costs. For the UK’s 4 million small businesses, this isn’t just another line item — it’s a real constraint on growth and hiring.

What’s the Impact?

The ENI rise directly affects payroll costs, meaning:

– Hiring becomes more expensive

– Growth plans are delayed or scaled back

– Business owners must make harder choices about where to invest

– Some may freeze recruitment altogether

This comes on top of other pressures, such as rising corporation tax, multiple cuts to the dividend allowance (now just £500), and increasing regulatory obligations.

Looking Ahead to the Autumn Budget

There are concerns that the government may raise taxes again in the October Budget to plug fiscal gaps. But rather than driving growth, this could have the opposite effect.

Businesses need breathing room — not more financial pressure.

What Should Happen Instead?

To support sustainable growth, policy decisions need to:

– Reduce the cost of employment

– Provide certainty for employers planning ahead

– Avoid further erosion of entrepreneurial incentives

– Recognise the essential role small businesses play in the UK economy

The government should be doing more to incentivise growth, not stifle it. That means:

– Lowering taxes for small businesses to free up capital for investment and job creation

– Restoring a meaningful dividend allowance to reward business risk

– Encouraging budding entrepreneurs to set up businesses — not discouraging them with complex rules and ever-higher costs

Creating a thriving small business ecosystem isn’t just good economics — it’s essential for long-term prosperity.

What Do Economists Say About the Recovery?

Economists remain divided on how quickly the UK economy will bounce back. While some predict a ‘V-shaped’ recovery — a sharp rebound after a downturn — many foresee a more prolonged and uneven path due to inflation, high interest rates, and global uncertainty.

Recent figures show inflation has crept up again to 3.6%, from 3.4%, suggesting that cost pressures are far from over. At the same time, the jobless rate has climbed to 4.7%, indicating that more people are struggling to find work as businesses remain cautious about expansion.

For the recruitment industry, the picture is complex. Rising employment costs and cautious hiring sentiment are creating headwinds, but opportunities still exist — particularly in sectors facing talent shortages or undergoing digital transformation.

As a recruitment partner, we’re here to help businesses navigate these challenges. Whether you need advice on workforce planning, access to flexible talent, or support in sourcing hard-to-find skills, we provide the insight and agility you need to adapt and thrive. In uncertain times, having the right people in the right roles has never been more important.

If your business is feeling the pressure and you’re unsure how to plan your hiring strategy in this economic climate, we’re here to help.

Get in touch with our team today to discuss how we can support your recruitment needs, build resilient teams, and help your business move forward with confidence.