Rising Costs Force Businesses to Rethink Hiring
UK businesses are increasingly turning to overseas talent and artificial intelligence as rising employment costs squeeze hiring at home, raising concerns about job losses, offshoring, and long-term damage to the domestic labour market.
The latest KPMG and Recruitment & Employment Confederation (REC) jobs report shows that while firms have moved on from the “wait-and-see” approach that followed November’s Budget, this has not translated into a hiring recovery. Permanent placements continued to fall, albeit at the slowest pace in 18 months, while temporary hiring rose only modestly as companies prioritised flexibility over long-term recruitment.
Vacancies Fall as Labour Market Weakens
Overall demand for staff remains weak. Vacancies fell for the 27th consecutive month in January, with the REC vacancies index dropping to 43.8 — well below the neutral 50 mark — signalling a continued downturn in hiring across the economy.
Neil Carberry, chief executive of the REC, said businesses are facing difficult trade-offs. “The decisions firms are now making involve lots of trade-offs, such as whether to create jobs in the UK or elsewhere, or which jobs need the human touch as opposed to an automated solution,” he said, warning that a growing economy requires high employment and sustained business investment.
Tax Pressure and Rising Unemployment
Rising employer costs are being driven by Chancellor Rachel Reeves’ National Insurance increase and higher minimum wages. Unemployment has climbed above 5 per cent, with Bank of England economists warning it could reach 5.3 per cent this year. Official figures from the Office for National Statistics (ONS) show tens of thousands of jobs were lost in late 2025, adding to fears of a weakening labour market.
Jobs Move Overseas as Firms Cut Costs
Critics say these policies are accelerating offshoring. Companies are increasingly hiring overseas workers for back-office roles, with South Africa emerging as a key destination for UK firms seeking lower costs. Roles such as administration, accounting, rota management, and customer service are now being moved abroad, even in sectors like construction and hospitality that were once seen as resistant to offshoring.
Alex Fenton, group chief executive of the Legends Agency, said: “The Government claims it is championing young and working people, yet its anti-business agenda is producing the opposite outcome… businesses are increasingly being forced to replace British workers with equally qualified overseas staff who cost a fraction of the price.”
AI and Automation Replace Traditional Roles
At the same time, businesses are investing more heavily in automation and AI to replace or reduce human roles, particularly in administrative and data-driven functions. Despite the downturn, competition for specialist skills in areas such as engineering, IT, and AI remains intense, pushing up starting salaries in high-demand sectors, according to KPMG UK.
Structural Shift in the UK Labour Market
As firms juggle rising taxes, global competition and rapid technological change, the UK labour market is entering a period of structural transformation — one where overseas hiring and automation are becoming central survival strategies rather than long-term growth choices.
Sources:
- KPMG & REC Jobs Report, January 2026
- Office for National Statistics (ONS), Employment Data, 2025
- Bank of England, Economic Forecast, 2026
Start your next move today with My Recruiter Jobs.
My Recruiter Jobs