Rising labour costs risk holding back job opportunities for young people as firms are pushed towards experienced hires, a survey has found.
Some 73% of firms which took part in a Confederation of British Industry (CBI) survey said employment costs were the highest threat to the UK labour market’s competitiveness.
Meanwhile, just 15% of the 682 firms polled between August and September said they were confident about hiring, down from 24% in 2025.
The poll found rising labour costs and employment regulations were putting pressure on firms’ ability to create job and training opportunities, especially for young people.
Some 44% of companies surveyed said rising recruitment and onboarding costs were pushing them towards experienced profiles, reducing entry-level openings for young people.
Additionally, 53% of firms said wider cost pressures mean they are offering fewer apprenticeships than they would like to.
An estimated 981,000 young people aged 16 to 24 in the UK were Neet between April and June this year (PA)
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CBI chief executive Rain Newton-Smith said the findings were a “clear signal” of the reform needed across the labour market, and called on the Government to use the upcoming autumn Budget to rebuild firms’ confidence.
Many companies have faced increased costs, including from higher inflation, utility bills and increased labour costs, and a surge in fuel costs following the Middle East conflict.
Young people have been particularly impacted, with an estimated 981,000 young people aged 16 to 24 in the UK not in education, employment or training (Neet) between April and June this year, according to the latest Office for National Statistics figures.
While this was down 30,000 from January to March this year, it was up 30,000 when compared with April to June 2025.
Another survey found almost three in 10 (28%) small employers would hire more staff if the small business rate relief (SBRR) was expanded.
The Government previously said the discount scheme, which reduces or eliminates the business paid by eligible small businesses, would be reviewed in the upcoming Budget.
A Federation of Small Businesses (FSB) survey of 1,033 small business owners and sole traders, conducted across two weeks in September, found more than a quarter (26%) of small employers would increase employee pay or benefits if the SBRR was expanded.
Ms Newton-Smith said: “Higher employment costs and growing regulatory pressures are making firms more cautious about hiring and investment.
“That matters not just for businesses, but for living standards and particularly for young people trying to get their first foot on the career ladder.
“The good news is that this is not irreversible. Government can use the upcoming Budget to rebuild confidence by giving firms greater certainty over future employment costs, ensuring regulation supports rather than inhibits hiring, and working with business to bring down the cost of creating jobs.
“Get that balance right and firms will have more of the headroom they need to invest in people, raise wages and create the opportunities that will drive growth.”
Carmen Watson, chairwoman of recruitment agency Pertemps, said: “Businesses want to invest in their people and build the skills they need for the future, but confidence remains fragile.
“Creating the right balance between employment costs, regulation and practical support will be essential to giving employers the confidence and headroom to recruit, invest in skills and create meaningful, sustainable employment for people at every stage of their working lives.”
Tina McKenzie, the FSB’s national chairwoman, said: “Small businesses across the UK are up against huge and persistent cost rises that are seeing so many struggle with running their business, let alone investing and expanding.
“This is the most important opportunity for the Government to make its more pro-small business tone a reality.
“If we are to get the growth needed, the Budget must be a moment for some meaningful action, backing the small firms and self-employed that are so crucial to the economy.”
A Government spokesperson said: “The Employment Rights Act will increase productivity, job security and retention in workplaces, benefiting over 18 million workers and we will continue to engage with businesses and unions to get the detail right, striking a fair deal for workers and the economy alike.
“We want to ensure that every young person has the chance to earn or learn while our recent partnership with retailers will help create 100,000 jobs for young people not in education, employment or training.”