UK jobs drought deepens as AI reshapes labor demand and policy debate intensifies

A UK jobs market has entered a drought, with vacancies continuing to decline and employers hiring fewer people, according to fresh data from the Office for National Statistics. From June to August, the number of vacancies fell by 10,000 to 728,000, the 38th consecutive month of decline. Unemployment rose to 4.7%, the highest in four years, and there is now an average of 2.3 unemployed people for every vacancy—the most since the depths of the Covid crisis. The pain is not evenly shared: young people are hardest hit, with 51,000 fewer under-25s in payrolled work in August compared with April, and nearly one million young people are not in employment, education or training.

A reed of concern runs through the labor market as recruitment slows and the economy faces structural shifts. James Reed, chairman and chief executive of Reed, argues that the current period is not simply cyclical but represents a more lasting change driven by policy choices and the advancing use of artificial intelligence in the workplace. He highlights three factors that he says are reshaping demand for labor: the increased burden of employers’ National Insurance, the new Employment Rights Bill, and the growing adoption of AI across sectors. A survey of more than 500 employers conducted by Reed found that 22% said the rise in employers’ NI had forced them to cut back on recruitment, and 15% linked AI to hiring constraints. More than one in five firms (21%) reported they have now implemented a hiring freeze.

The numbers behind the NI changes are concrete. In April, Chancellor Rachel Reeves increased the employers’ NI rate from 13.8% to 15% and lowered the threshold at which employers begin paying it, from £9,100 to £5,000 annually. Reed argues that this amounts to a roughly £25 billion tax hike on business by the end of the decade and points to direct hiring slowdowns or freezes reported by employers as evidence of a drag on the jobs market. He adds that the policy environment is shaping hiring decisions just as firms weigh the cost of regulation and taxation against the need to grow.

Beyond NI, Reed criticizes the Employment Rights Bill, describing it as a 197-page measure that would apply to every employer, regardless of size. He notes that day-one rights for workers to claim unfair dismissal could discourage risk-taking in hiring, and that although the House of Lords introduced some sensible changes, the government has signaled it intends to revert those changes. Reed warns that such reversals could further chill recruitment and worsen the labor market outlook.

The shift goes deeper than regulatory changes. A Boston Consulting Group survey cited by Reed shows that more than half of UK businesses plan to prioritise investment in AI over hiring due to higher labor costs and regulatory considerations. While Reed concedes that AI can create opportunities—potentially enabling new roles and productivity gains—he argues the disruption is already affecting mid- and entry-level jobs in fields like accounting and law, where repetitive research and admin tasks can be automated. The evolving demand has contributed to a notable tightening of the job ladder for graduates and school leavers.

Reflecting these trends, Reed points to dramatic changes in graduate recruitment. Data from Reed.co.uk indicate that graduate jobs posted have fallen to about 55,000 last year from more than 180,000 in 2021, a collapse he calls startling. He warns that a smaller pool of young talent entering the workforce could have long-run consequences for British business and economic growth, unless policy and industry action helps adapt the labor market to an AI-enhanced economy.

Against this backdrop, Reed highlights several measures he believes could help stabilize and rebuild the jobs pipeline. Reed.co.uk has launched the Million Jobs Giveaway, offering up to a million free job postings between now and the end of the year to support recruiters and jobseekers. He also urges policymakers to consider a VAT-energy relief to offset rising energy bills and to reform business rates in ways that particularly aid small and medium-sized employers. He argues that the NI rise should be revisited and that targeted support for entry-level and graduate roles is essential, along with reforms to apprenticeships to make them more attractive and more effective at delivering lasting, lucrative careers.

The broader question, according to Reed, is whether the UK’s higher education model remains aligned with a changing economy. With AI reshaping demand for routine, repetitive work, he warns that permanent structural changes could hollow out white-collar roles just as manufacturing or blue-collar work experienced in decades past. He calls on government, industry and the recruitment sector to collaborate on a steadier, more forward-looking approach to skills and labour-market policy—one that balances protections for workers with incentives for firms to hire and train.

Microsoft’s announcement of a substantial investment in the UK AI sector—reported as about £22 billion and described as among the largest such investments outside the United States—adds another layer to the debate. Proponents argue it could boost productivity and economic growth in the medium term, but Reed cautions that automation-enabled productivity gains must translate into real opportunities for workers who may be displaced. He contends that a successful transition will require deliberate strategies to help workers move into higher-value roles in data, AI, and digital technology, including strengthened apprenticeships, retraining programs and targeted early-career pathways.

In sum, Reed argues that the current mix of tax, regulation and rapid technology adoption is reshaping the UK’s jobs landscape in ways that could be lasting. He says policymakers, employers and recruiters must act together to defend employment opportunities for young people and to ensure a steady pipeline of skilled workers for AI-enabled growth. If measures are not pursued, he warns, the country risks a “lost generation” of young talent and a slower path to tax receipts and social mobility that depend on robust workforce participation.