FALLING payrolls and vacancies are a result of firms grappling with higher National Insurance (NI) bills, an increased wage burden and increasingly “using automation to avoid adding headcount”, experts have said.
They added young people are bearing the brunt, as seen with NEET (young people ‘Not in Education, Employment, or Training’) numbers approaching one million — and warned a whole generation is getting “locked out of work” with profound “long-term economic and social consequences”.
Data published this morning shows vacancy numbers hit a near 5-year low in the latest quarter, with early estimates in January to March 2026 suggesting a decrease of 29,000 (3.9%) vacancies to 711,000, compared with October to December 2025 — the lowest level of vacancies since February to April 2021.
The data also showed the number payrolled employees in the UK fell by 74,000 (0.2%) between February 2025 and February 2026, and decreased by 6,000 (0.0%) between January and February 2026.
Between December 2025 and February 2026, the number of payrolled employees fell by 87,000 (0.3%) over the year and by 9,000 (0.0%) over the quarter.
The early estimate of payrolled employees for March 2026 decreased by 65,000 (0.2%) on the year, and by 11,000 (0.0%) on the month, to 30.3 million.
However, unemployment surprised and fell to 4.9% between December 2025 and February 2026, down from 5.2% in the previous quarter.
Liz McKeown, Director of Economic Statistics, ONS, said: “The number of workers on payroll remained broadly flat in recent periods, reflecting ongoing weak hiring. Vacancies fell to their lowest level in almost five years, but with unemployment also falling the number of vacancies per unemployed person remains broadly unchanged.”
Dangerous mix
Rohit Parmar-Mistry, Founder at Burton-on-Trent-based Pattrn Data, an AI consultancy, said “the labour market is being squeezed from both ends”.
He continued: “Employers are dealing with higher wage costs, higher NI bills and weaker confidence, while younger people are being told to stay optimistic in an economy that increasingly offers insecurity, not progression. That is a dangerous mix, and it helps explain why the NEETs problem keeps getting worse.
“AI is part of this story, but not in the lazy way people frame it. Most firms are not replacing whole teams overnight. What they are doing is freezing junior hiring, stretching existing staff further, and using automation to avoid adding headcount.
“That matters because entry level jobs are where people learn the habits and judgement that build long-term careers. So the real risk is not robot takeover tomorrow but a slow hollowing out of the bottom rung.
“If the government wants to tackle this seriously, it needs to make hiring people feel viable again, not just celebrate productivity statistics while a whole generation gets locked out of work.”
Economically illiterate
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, is one such business owner for whom hiring is simply not viable in the current fiscal environment.
He said: “I have no intention of hiring anytime soon. The Iran war’s impact on energy prices, supply bottlenecks and inflation haven’t helped, but the root cause is this government’s economically illiterate policies, which have left employers facing record taxes and regulatory burden.
“The incentive to run a business is being systematically eroded. Most UK business owners I speak with have shifted from growth to survival, turning to AI agents to fill entry-level roles.
“2026 will be defined by businesses battening down the hatches. AI and automation are no longer emerging technologies but necessary shields against a perfect storm of rising taxes, regulatory overreach, and soaring costs.”
Structural shift
Paul Denley, CEO at London-based Oakham Wealth Management, said AI has introduced a “structural shift” into the UK jobs market.
He continued: “The increasing sophistication of AI is easing pressure on teams, enhancing productivity without the need for headcount. That doesn’t imply an immediate impact on jobs, but it does suggest hiring decisions may become more measured over time.
“Most concerning is the deteriorating outlook for young people. The rise in NEETs points to a deeper failure of entry level opportunity, which risks becoming entrenched. Policy must be directed at creating pathways into work. Without that, the long-term economic and social consequences could be profound”
Katrina Young, Chief Technology Officer and AI & Digital Transformation Strategist at KYC Digital, said AI is simply accelerating an existing trend: “Businesses are not replacing junior staff with AI systems. They are simply not replacing them at all.
“Entry-level roles are being absorbed into existing headcount or quietly eliminated. This is being driven not by technology but by NIC increases and National Living Wage rises hitting margins where junior hiring is most discretionary.
“AI is accelerating a shift that was already in motion. The sectors that have historically onboarded young workers were already contracting before automation became a credible option for most firms.
“The real risk is not a future displacement event but a generation being shut out of the workforce while policy targets the wrong cause.”
Perfect storm
Mary Maguire, Managing Director at Derby-based Astute Recruitment, said “the UK’s SMEs have been hit by a perfect storm”.
She continued: “The twin tornados of National Insurance and minimum wage increases have merged with this year’s Middle East crisis, energy shocks, advances in AI and general economic gloom. The forecast looks set to remain very unsettled with no change in sight.”
