Redundancy activity jumps as private sector pay expectations remain low, new research from the CIPD and the Adecco Group shows

New research from @CIPD and @AdeccoGroup finds the UK job prospects remain weak, with one in three (33%) organisations expecting to cut jobs in the third quarter of 2020 

Survey of more than 2,000 employers points to a ‘challenging autumn’ for pay and jobs

The latest quarterly Labour Market Outlook report shows a 50% increase in the number of organisations expecting to cut jobs compared to the spring report, rising from 22% three months ago to 33% in this latest report. Twice as many private sector employers (38%) expect to make redundancies compared to the public sector (16%).

The survey of more than 2,000 employers found that overall hiring intentions have increased, with almost half (49%) of employers expecting to take on new recruits in the next three months, compared to 40% last quarter. However, this confidence remains well below levels seen in previous years. It also found that employment confidence has fallen in all three sectors of the economy: private, public and voluntary. The report’s net employment balance, which measures the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels, has fallen from –4 to –8 over the last three months. This is the lowest figure since the survey was conducted using its current methods (February 2013).  

The survey also finds that employers across all sectors intend to keep a tight rein on pay increases over the next 12 months. Those who plan pay reviews expect basic pay to increase by 1%, much lower than the 2% median increase expected this time last year. Median basic pay expectations in the private sector have increased to 0.8% from 0% three months ago. While we see a modest rise in median basic pay expectations in the private sector, overall improvement is hindered by a relatively large proportion of employers able to predict the outcome of a pay decision over the next 12 months that plan to introduce wage freezes in the 12 months to June 2021 (40%).

Gerwyn Davies, Senior Labour Market Adviser at the CIPD, the professional body for HR and people development, comments:

“This is the weakest set of data we’ve seen for several years. Until now, redundancies have been low – no doubt due to the Job Retention Scheme – but we expect to see more redundancies come through this autumn, especially in the private sector once the scheme closes. Hiring confidence is rising tentatively, but this probably won’t be enough to offset the rise in redundancies and the number of new graduates and school leavers entering the labour market over the next few months. As a result, this looks set to be a sombre autumn for jobs.

“This will likely be accompanied by a pay squeeze for workers, which is actually to be welcomed to help preserve jobs despite any modest fall in real wages in the private sector. This could be an important factor in limiting large-scale job cuts, as it was in the last recession. We urge organisations to do all that they can to keep employees in work and only make redundancies as a last resort, exploring all other options first. This could include freezing recruitment, reducing hours or restricting overtime, or cuts to bonuses and deferring salary increases.”

Alex Fleming, Country Head and President of Staffing and Solutions, the Adecco Group UK and Ireland, comments: 

“This latest report shows a mixed picture with regards to the status of the current labour market. Redundancy intentions have increased by 11% compared to the previous quarter but, more positively, nearly half (49%) of UK employers are planning to recruit over the next three months, which could be an indication that businesses are reshaping for the future.

“We’re also seeing more candidates applying for high skilled roles, which aligns with the trend of people sourcing alternate forms of education in order to upskill and expand their knowledge, during this time of uncertainty. 

“As organisations continue transitioning into the new era of work, there will be ongoing shifts in working patterns not only for employees but also for those who are just starting out in their career. Therefore, businesses must demonstrate resilience and adopt new approaches to closing the skills gap by investing in upskilling and reskilling workforces. Creating a positive workplace culture is also integral to maintaining focus, engagement and motivation among existing employees.”

Report Summary

Redundancies The proportion of employers intending to make redundancies over the next three months has increased to 33%, rising 11% since last quarter. This jump reflects the worsening economic landscape and clarity over the Government’s Job Retention Scheme. The average direct cost to employers in making a redundancy is £11,125.

Labour demand Overall, employment demand is down this quarter compared to Spring 2020. The net employment figure – which measures the proportion of employers planning to increase or decrease staffing levels – dropped from -4 to -8. This is the lowest figure recorded since the survey was conducted using its current methods, and is a sharp contrast to the +21 recorded in the Winter 2019/20 report. However, the net employment score remained high in sectors such as healthcare (+30) and public administration (+13). It was lowest in hospitality (-26), transport and storage (-24), and retail (-23).

Pay expectations Median basic pay increase expectations for the next 12 months remain low as employers look to streamline business costs. This is unchanged from last quarter at 1%. In the private sector, basic pay expectations were 0.8%, while in the public sector they were 1.7%. 40% of private sector firms expect to freeze pay over the next 12 months.

Other key findings of the report include:

• There is a large variation across sectors in terms of the net employment balance. Employment confidence is highest in healthcare (+30) and public administration (+13) and lowest in hospitality (-26), transport and storage (-24) and retail (-23). In terms of the nations and regions, confidence is highest in Wales (+12) and North East England (+5) and lowest in the West Midlands (-23) and Scotland (-17).
• Recruitment intentions among employers surveyed have increased across all industries over the past quarter, but are well below the levels seen in previous years. Nearly half (49%) of employers plan to recruit in the next three months of 2020; up 9% from spring but down 17% from the winter 2019/20 quarter. Recruitment confidence has risen most sharply in manufacturing (up 22 per centage points) and administrative and support services (up 18 per centage points) compared with the spring quarter.

In response to the impacts of COVID-19, employers are exploring a variety of options to stave off or minimise redundancies:

• More than four in ten (42%) employers have implemented recruitment freezes. The proportion of organisations adopting a recruitment freeze is significantly higher for the private sector (47%) than the public sector (22%); especially in hospitality (65%), business services (54%) and IT (52%).
• Many employers are exercising similar wage flexibility as the previous recession of 2008/09, which should help preserve some jobs. Pay cuts (18%), bonus cuts (26%) and freezing or delaying pay increases (33%) are all tactics that employers have used in response to the current pandemic. Pay cuts are more prevalent in the construction (44%), business services (30%) and hospitality (29%) sectors.