2025 Budget: What It Means for the Recruitment Sector

Insights and commentary from QUBA Directors.

The 2025 UK Budget introduces a range of tax, employment and workforce-related measures that will influence recruitment markets over the coming years. The recruitment sector has always been reactive to fluctuations, and with the budget announcements focusing on longer-term changes which are still subject to subsequent Government input, recruitment agencies need to take these on board, however they will not feel the immediate impact.

While many points simply extend policies already in place, several changes will shape hiring behaviour, cost pressures and opportunities for agencies.

Below is a clear breakdown of the measures we believe are most relevant to recruitment businesses, alongside comments from QUBA Directors on how these changes may affect clients, candidates and agency operations.

1. Hiring costs: Upward pressure continues

Income Tax and Employer NI threshold freeze (extended to 2031): The Budget extends the freeze on Income Tax and employer National Insurance thresholds for an additional three years. As wages rise, more workers may move into higher tax bands over time, reducing take-home pay, whilst freezing employer NI thresholds will see increased relative NI cost for employers, as wages rise.

Andrew Williams, QUBA Head of Finance comments:

“Since the freeze was already in place until 2028, this update extends what businesses had anticipated. Over time, rising NI costs may encourage some organisations to look more towards flexible or short-term staffing options and I imagine, will focus their efforts largely on automation and efficiency-led investment.”

2. National Minimum Wage increase

The minimum wage rise means hiring lower-paid workers becomes more expensive for clients and agencies.

Rik King, QUBA Director comments:

“This change naturally puts more pressure on margins and rate negotiations. When the cost of employing people rises, some organisations explore leaner operating models or increased automation. In certain cases, agencies may find opportunities where clients choose to outsource lower-level administrative roles rather than retain them in-house.”

3. Changes affecting candidate salaries and expectations

Income tax threshold freeze: Freezing income tax thresholds means more workers may move into higher tax bands over time, reducing take-home pay despite stable salaries.

Ashley Lyas, QUBA Director comment:

“We may see candidates seeking higher wages simply to maintain their existing living standards. This could slow down some permanent hiring if businesses cannot match salary expectations.”

4. Business owners

Dividend tax increase: The rise in dividend tax affects both limited-company contractors and small business owners in recruitment.

Andrew Williams, QUBA Head of Finance comments:

“Business owners who pay themselves through dividends will see an impact on their own income and may need to re-look at their income extraction strategy.”

5. Pension salary sacrifice changes

Salary sacrifice NI benefit cap (from 2029): A future cap on the NI advantage of salary sacrifice pensions will limit how much tax can be saved through these schemes.

Rik King, QUBA Director comment:

“This may make salary-sacrifice arrangements slightly less attractive over time, but changes are not immediate. When the time comes, employers may need to review their benefits structures accordingly.”

6. Cost-of-living pressures

Rental income tax increase: Higher taxes on rental income may contribute to increases in private rents.

Rik King, QUBA Director comment:

“Higher living costs can translate into increased wage pressure, particularly among lower and mid-income workers. This factors into negotiations for both temporary and permanent placements.”

7. Skills and entry-level workforce supply

Free apprenticeship training for under-25s (SMEs): The government will fund apprenticeship training for under-25s in small and medium-sized businesses.

Ashley Lyas, QUBA Director comment:

“This creates a pool of newly trained young candidates. Agencies working in early-careers or construction sectors may find opportunities to collaborate more closely with employers and candidates. While it is less relevant to high-volume temp markets, it still represents an opportunity for agencies who operate in these areas.”

Work placement requirements for 18-21 year-olds on Universal Credit: More young people may enter the jobs market to comply with these rules.

Rik King, QUBA Director comments:

“This should increase the supply of entry-level candidates, which may support sectors experiencing shortages.”

8. Slower economic growth outlook

The OBR has revised the UK’s medium-term growth forecast downwards. Slower expected growth often leads to more cautious hiring behaviour.

Andrew Williams, QUBA Head of Finance comments:

“When companies face uncertainty, they frequently shift towards temporary or contract hiring to maintain some flexibility. While permanent recruitment may slow down, temporary staffing can become more attractive in such climates. There are also wider opportunities emerging in areas such as IT, automation and AI as businesses explore efficiency gains.”

Overall outlook for the recruitment sector

The Budget highlights that costs are continuing to rise for both employers and workers, and it points to a more cautious economic outlook over the next few years.

• Costs are rising, especially for lower-paid workforces.
• Candidates may push for higher wages, impacting salary alignment.
• Employers might rethink how they resource their teams, which could open up more opportunities for contract and temporary staffing.
• We may see more entry-level candidates coming into the market thanks to changes to apprenticeships and Universal Credit.
• If businesses become more cautious about hiring permanently, demand for flexible staffing options is likely to grow.

Ashley Lyas, QUBA Director comment:

“The overall picture is one where flexibility becomes increasingly important for employers. Recruitment businesses that can support clients through adaptable staffing models, while managing margin pressures and candidate expectations, will be well positioned in the months ahead.”

 Important: This information is for educational purposes based on information correct on 27 November 2025. Many of these proposed changes are subject to government consultations. The details are subject to change.