How the Latest Budget Will Shape the UK Recruitment Market (Next 12–36 Months)

This week Rachael Reeves and the Labour Government released the 2^nd Budget. This, as always has brought with it uncertainty and confusion.

All of the uncertainty and confusion is going to mean a period of adjustment for the UK recruitment market. I am going to look at some of the key points of the budget and discuss how they may affect the recruitment world over the next 12 – 36 months.

I will look at the impact on:

·        Businesses

·        hiring trends

·        workforce expectations

·        early talent growth

·        sector pressures.

Tax Threshold Freeze

One of the most talked about points is the three year tax threshold freeze.

This means that the tax thresholds will now remain the same until 2031. It was initially suggested that Income Tax was going to be increased, which was met with outrage and frustration. This freeze has meant that there isn’t technically an increase.

What we now have is called a stealth tax.

This means that as you start to earn more with wage inflation and promotions, you are going to reach the higher tax threshold quicker than you may have without the freeze.

This means that those who are going to cross the threshold, that may not have done before will have a lower take home compared to if the threshold wasn’t frozen.

These workers will now start to have an inflated expectation for salaries in not only their current role, but any future role. It may mean that more people start looking for a new job to help them secure a higher salary to negate the higher rate of tax they will be paying.

For businesses, this will add pressure financially.

They have already has to deal with the National Minimum Wage increase along-side the higher Employers National Insurance increase in April this year. Now they are going to have to deal with increased salary expectations and more complex retention strategies.

The pressure to adjust salaries for those around the 40% tax threshold could mean a salary compression for lower and some mid-level roles. This will then in turn lead to similar struggles with these employees.

So this will create new challenges for organisations looking to grow as they will have to navigate the staff retention challenge first.

Rising Minimum Wage

As we saw with the last budget, there is an increase in the National Minimum wage.

When you first hear it, you may be relieved or happy, but when you look deeper, it may not be all sunshine and roses. As I mentioned earlier, there was an increase last budget that took effect in April, alongside the ENIC increase. These had an huge effect on organisations particularly in the hospitality, care, retail and, logistics sectors.

This increase will again add another financial strain for the businesses in those sectors, as it means higher outgoings on salaries and benefits. When budgets are tighter and people are spending less, these sectors are going to be seeing a reduced profit margin. So adding another financial stress could be catastrophic for some of them.

When it comes to recruiters, this is an area that you are going to need to change your approach.

There may be more candidate movement and a higher demand and competition for the lower-wage talent. However, there may not be the budget there to over pay, or commit long term to employees. Focusing on temp or contract solutions may be a key to keeping the sector afloat. You will also need to become more consultative and help with salary benchmarking and become an advisor.

You have an opportunity to make a difference to your clients and differentiate yourself from the competition.

Welfare Reform & Inclusion

The welfare reform will have a huge impact on the labour market.

The reform will mean that with the Universal credit changes, around 15,000 people will be returning to work. This will most likely mean an influx of workers in the industries mentioned previously. So this may help to alleviate some of the challenges around hiring staff, as there may be a mini-market shift for those industries.

There are changes coming in regards to the Motability Scheme.

This means that may people with disabilities will be affected, and will no longer be able to get help with funding, adapting or buying a car. They will then have a harder time getting to work. This will mean that businesses will have to start rethinking their EDI policies.

This could have huge changes to businesses.

It will lead to them having to look at building accessibility, for those who have difficulties with mobility. It will also mean that they may have to offer more flexible working. Things like Hybrid and remote working opportunities as a retention strategy.

A New Wave of Entry-Level Talent

The talent pool for many sectors has become incredibly stretched.

May sectors have an aging workforce, where the skills gap is growing year on year. Businesses are struggling to finds new talent that can plug the gap left by the older workers. There was a push for apprenticeships to help with this issue, but that only helped so much.

The new budget is trying to build on that initial work.

They are creating opportunities for early career hiring by offering free apprenticeships for SMEs. As well as helping with in-house skills developments. £13bn will be assigned to flexible funding for regional skills. Strengthening regional talent pools, and helping businesses plug the growing skills gaps.

Although this may not help recruiters in the short term, it will help to create long-term stabilisation of talent pools in sectors where there were alarming shortages.

So recruiters will now be able to start refreshing their talent pools by engaging with the new influx of workers in the sector.

Workforce Motivation

Salary & cost-of-living pressures

• Job security and stability

• Development opportunities and progression

• Flexibility, wellbeing, meaningful work

As all recruiters know, understanding the motivations of workers, helps to understand why they want to move jobs.

This information is gold if you are looking to start building strong relationships with clients and prospects. Being able to consult on attraction and retention strategies will add just as much value to them as providing them with top tier talent.

With the new budget we are going to see people looking for the classic things like higher salary to combat the cost of living crisis, Development and progression. We will see the continues search for employers who provide flexible working alongside employee wellbeing.

We are also going to see a rise in job stability and security again. Much like the Pandemic markets, employees are going to want to make sure that they will still have a job in 12 months’ time. They won’t want to be going to work and oping it’s not their last day.

This is driven by the increased financial pressures that we are going to see over the next year or so, as well as the uncertainty that will be surrounding businesses.

What Recruitment Leaders & Employers Must Do Next

There are 3 key areas that will need to be the focus over the coming months to help alleviate the challenges facing businesses.

Organisations are going to need to strengthen their retention strategies.

As I mentioned before, the workforce are going to be looking for the 3 S’s (stability, security and salary). So businesses will need to review their pay benchmarking to make sure they are aligned with the rest of the market, improve non-financial incentives to help retain talent, and improve management capability.

This will help to keep people in the business and reduce the need to hire quickly to maintain productivity.

They will also need to start building early-talent pipelines.

Lean on apprenticeships to start shrinking the skills gap. Create structured L&D processes and departments to help develop their employees, increase motivation and future-proof themselves. They will also need to develop partnerships with local training providers to assist with the upskilling and progression of their workforce and wider organisation.

Third, they will need to focus on workforce planning.

They will have to start looking further into the future. Start scenario planning for things like continued wage inflation. They will need to review who and how they hire. And they will need to invest in their branding and EVP to become a more attractive potential employer.

These 3 things will help to maintain productivity, future-proof themselves, and lay the foundations for future hiring needs.

Conclusion

Then next 12 – 36 months are filled with uncertainty, challenges and the unknown, but there is, as always, opportunity.

We are going to see more financial stress for businesses, growing talent pools, with the potential for less jobs, and a huge shift in the recruitment market. However, there is an opportunity to be had, by strengthening relationships with clients through a more consultative approach. Focus on sharing market knowledge, and discovering solutions to problems rather than throwing CVs at them.

Start to engage with the younger workforce who may be at the very beginning of their career, but will be the core of the workforce in a few years, to help refresh your talent pool as the current workforce ages out.

Review your recruitment model. Can you start to leverage the temp and contractor market? Could you create a more cost effective way for clients to use you, without drastically affecting your profit margin?

Don’t look at the budget and see a bleak view where all hope is lost. Search for the opportunity to make a difference and get your market through this new challenging time.