The UK government is under mounting pressure to reduce employment-related red tape after the pool of people seeking work expanded for a 41st consecutive month, extending a labour market slowdown that has persisted since the post-pandemic recovery stalled.

According to data compiled by KPMG and the Recruitment and Employment Confederation (REC), the number of individuals searching for employment has now increased for nearly three and a half years, while available job vacancies have declined for 22 straight months. Official figures place the unemployment rate at 4.9 per cent, though economists forecast it could climb to approximately 5.3 per cent over the course of this year. Vacancies have largely trended downward over the past four years. The sustained rise in jobseekers alongside shrinking vacancy numbers has placed the UK labour market among the weakest performing in the G7 in terms of hiring momentum.

Jobseekers may increasingly turn to short-term positions, as temporary placements rose for the fourth consecutive month while permanent placements held steady, the KPMG and REC findings showed. The shift toward temporary hiring mirrors patterns seen across European labour markets, where employers facing uncertain demand and rising payroll costs have favoured flexible staffing models over permanent commitments.

Maxine Bligh, REC's chief membership and innovation officer, said the increase in temporary job vacancies — the first such rise in two years — signaled that employers were preparing to "revive hiring plans." She urged the government to foster "momentum in hiring" and place the jobs market at the top of its agenda as ministers begin setting out policy in the months ahead.

"If the government is serious about getting more young people their first vital opportunities of work they must think carefully about the balance of their 'make work pay' agenda by easing mounting costs and red tape around employment," Bligh said.

Pressure Mounts on Burnham to Reinvigorate the Jobs Market

Industry leaders have intensified pressure on Andy Burnham, John Healey, and Business Secretary Jonathan Reynolds to deliver a meaningful boost to employment later this year. Critics have blamed Sir Keir Starmer and Rachel Reeves' tax increases for deteriorating conditions in the UK labour market.

Companies have scaled back hiring plans following a sharp rise in costs in recent years, driven in part by Reeves' decision to increase national insurance contributions for businesses. According to the latest data from the British Chambers of Commerce (BCC), fewer than a quarter of firms expect to expand their workforce in the coming months. The employer national insurance hike, announced in the October 2024 Budget, raised the rate from 13.8 per cent to 15 per cent and lowered the threshold at which contributions begin, adding billions in cumulative costs across the private sector.

Employment law changes introduced under Starmer's government — including provisions of the Employment Rights Bill covering day-one unfair dismissal protections and strengthened worker classifications — have further complicated the hiring landscape for companies uncertain about future compliance costs.

Burnham has identified boosting youth employment as a key priority. Meanwhile, the KPMG jobs report indicated that firms were enhancing pay packages for new hires, with starting salary growth accelerating at its quickest pace in six months. London recorded the largest increase in starting salaries. Additionally, new public procurement rules will reward employers that raise wages above the national minimum wage. With the Bank of England continuing to track wage growth and labour market slack closely as it calibrates its interest rate path, the interplay between hiring costs, pay pressures, and government regulation is likely to remain a central focus for both policymakers and employers in the months ahead.