DWF comments on UK labour market and upcoming budget

UK labour market stats:

Economic uncertainty and continuous regulatory and legislative reform are placing increasing strain on the UK labour market. The UK employment rate was estimated at 75% in July to September 2025. This is down in the latest quarter but above estimates of a year ago. The UK unemployment rate was estimated at 5% in the same period. This is up in the latest quarter and above estimates of a year ago. These figures highlight the significant pressure on employers in the current environment.

The estimated number of vacancies in the UK are largely stable over the quarter, early estimates suggest a small increase of just 2,000 vacancies to 723,000 in August to October 2025. We are still seeing a reluctance across the market to recruit employees as employers grapple with rising costs and increased worker protection.

Annual growth in employees’ average earnings in Great Britain for regular earnings (excluding bonuses) was 4.6% and for total earnings (including bonuses) was 4.8% in July to September 2025. Annual average earnings growth was 4.2% for the private sector and 6.6% for the public sector. The figures are slightly altered due to public sector pay rises being paid earlier in 2025 than in 2024. Employers remain under sustained pressure to adjust compensation in line with escalating living expenses.

Despite the Employment Rights Bill batting back and forth between the House of Commons and the House of Lords, we can expect Royal Assent before Christmas, with a raft of new employment legislation to follow. Many employers are adopting a cautious stance on recruitment amid concerns over rising costs, reduced flexibility, and greater compliance obligations. Attention is now turning to the Autumn Budget for clarity and reassurance in the face of ongoing economic uncertainty. However, the reality is that the Budget is unlikely to alleviate concerns with predictions of further cost increases for employers.

Employers should take proactive steps now to prepare for upcoming reforms and ensure a seamless transition. These changes present an opportunity to enhance workplace protections and create a stronger, future-ready workforce.

Liz Ramsaran, Pensions Partner at DWF commented:

“Changes to the pensions landscape made at the next budget are also likely to have an effect on employers and their workforce including in terms of increased costs of staff rewards and benefits packages and also on the ability of workers to be able to afford to retire.

While we wait for confirmation from the budget on the 26th, we are expecting that there may be changes to the amount of tax-free cash that members can extract from pensions arrangements. A tax-free cash lump sum is a key feature of pensions arrangements and something individuals may have already factored into retirement plans.

It is also possible that there will be changes to salary sacrifice arrangements that may make contributing to a pension scheme less tax efficient ultimately impacting the amount being added to individual pension pots. In addition any work required to unpick salary sacrifice arrangements already in place will require a substantial exercise to be carried out by employers including changes to employment contracts.”