IOD: 75% of business leaders to reduce human hiring with automation due to Employment Rights Bill

Institute of Directors warns of hiring freeze as 72% of executives predict negative growth impact. Plus, over a third of leaders (36%) are likely to outsource roles or operations to other countries

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New research reveals the profound concerns executives have about Labour’s flagship Employment Rights Bill. According to a comprehensive survey by the Institute of Directors, nearly three-quarters of business leaders believe the legislation will damage UK economic growth, with many planning to reduce hiring, outsource overseas and accelerate automation investments.

The research, conducted in May 2025 among 483 business leaders across the UK, paints a troubling picture for the self-employed, freelancers, and contractors who depend on a thriving economy for opportunities. With 72% of directors predicting negative economic impact, the findings suggest Labour’s employment reforms may inadvertently undermine the very growth the government seeks to achieve.

Hire humans? Why bother

Perhaps most concerning for the UK’s workforce is the surge in automation investment. Over half (52%) of business leaders indicated they will be more likely to invest in automation technologies as a direct response to the Employment Rights Bill.

This trend aligns with broader economic pressures, as IBM recently replaced hundreds of human resource workers with “AI agents” to handle repetitive tasks such as onboarding and scheduling interviews, saving the company 40% in its HR budget over four years.

The Bank of England has already noted this shift, with a survey of agency contacts in Autumn 2023 showing most firms that had invested in AI expected to see productivity gains within 2-3 years, with more firms planning AI investments in the future.

For freelancers and contractors, this acceleration towards automation presents both challenges and opportunities. While traditional roles may disappear, new opportunities in AI implementation, maintenance, and oversight could emerge for those able to adapt their skills.

Hiring is going south (and abroad)

The research reveals alarming statistics about future employment prospects:

• 49% of business leaders report being less likely to hire new staff
• 36% state they will be more likely to outsource roles or operations abroad
• 23% indicate they will be more likely to make redundancies

These figures directly contradict the government’s ambition to achieve an 80% employment rate. For the UK’s estimated 4.3 million self-employed workers, contractors, and freelancers, reduced hiring intentions could significantly impact project availability and day rates.

Alex Hall-Chen, Principal Policy Advisor for Employment at the Institute of Directors, warned: “The Employment Rights Bill, in conjunction with the recent increase in employer National Insurance Contributions and above-inflation increases to the National Living Wage, is significantly damaging business hiring intentions and confidence in the UK economy.”

Hall-Chen said IoD’s research clearly shows that the Bill will “undermine the government’s key aims of securing the highest sustained growth in the G7 and achieving an 80% employment rate.”

She said, “Government has yet to show that it is listening to the concerns of business about the potential unintended consequences of the Bill as it is currently drafted.” 

The government’s narrative is giving mixed messages

The Labour government presents a different view. Government impact assessments conclude the bill could have a direct and positive impact on economic growth. By boosting protections and quality of work for the lowest paid, the Bill will help raise living standards for families and communities across the UK.

But if companies are not hiring, then this argument falls flat.

Labour’s optimistic assessment appears increasingly at odds with business sentiment. The government’s own statement that the Bill will “support the Government’s mission to increase productivity and create the right conditions for long-term sustainable, inclusive, and secure economic growth” seems undermined by the IoD’s findings.

International competitiveness concerns

The research highlights a particularly worrying trend for UK competitiveness. Over a third (36%) of business leaders indicate they will be more likely to outsource roles or operations to other countries. This suggests the Employment Rights Bill may inadvertently accelerate the offshoring of British jobs, undermining the government’s growth objectives.

For freelancers and contractors, this trend could prove devastating. Many independent professionals compete directly with overseas talent, and if companies are actively seeking to move operations abroad, it could significantly reduce the pool of available work.

Policy recommendations

To address these concerns and support self-employment while encouraging business investment in people rather than mostly automation, the government should consider targeted reforms:

Employment Law flexibility

• Introduce a two-tier system that provides enhanced flexibility for businesses with fewer than 50 employees

• Create safe harbours for genuine contractor relationships to protect the self-employed from inappropriate IR35 classifications

• Extend probationary periods for new hires to reduce the risk perception among employers

Tax Incentives for human capital

• Introduce enhanced tax reliefs for businesses that choose human workers over automation for specific roles
• Create a “human-first” corporation tax rate reduction for companies demonstrating a commitment to UK employment
• Establish tax credits for businesses that hire UK-based freelancers and contractors

Incentivise self-employment

• Simplify IR35 rules to provide clearer boundaries between employment and genuine self-employment
• Introduce easy-to-use and independent portable benefits schemes that allow freelancers to build pension and benefit entitlements across multiple clients
• Create tax-advantaged professional development accounts for the self-employed
• Do not penalise solo self-employed, enable them the flexibility to increase their earning power and the tax revenues will follow

Innovation Without Displacement

• Mandate impact assessments for AI implementations in companies above certain thresholds
• Introduce “human transition funds” requiring companies implementing large-scale automation to contribute to retraining programmes
• Create incentives for “human-AI collaboration” models rather than pure replacement strategies

The Productivity Paradox

Hall-Chen noted one potential silver lining: “More employers will invest in automation and other measures which may improve the UK’s stagnating productivity levels.” However, this presents a classic economic paradox. While automation may boost productivity statistics, it could simultaneously reduce employment opportunities and consumer purchasing power.

Government projections suggest expenditure on AI-related labour could reach between £80.2 billion and £103.2 billion by 2025, indicating massive investment in automation technologies. Without corresponding investment in human capital and reskilling, this could create a two-tier economy where productivity gains fail to translate into broader prosperity.

Consumer Impact and Economic Growth

The Employment Rights Bill’s impact extends beyond employment into consumer spending patterns. If businesses reduce hiring while increasing costs through enhanced employee protections, the resulting squeeze on employment could reduce consumer purchasing power. This creates a negative feedback loop where reduced spending further constrains business growth and employment.

For freelancers and contractors, who often operate as both service providers and consumers, this double impact could be particularly acute. Reduced client demand combined with their own constrained spending power could significantly impact economic dynamism.

How can we restore UK business confidence?

As the Employment Rights Bill continues its passage through the House of Lords, the Institute of Directors is calling for targeted amendments to restore business confidence. The research suggests that without such changes, the UK risks undermining its own growth objectives while accelerating trends toward automation and offshoring that could fundamentally change employment figures and household incomes.

For the millions of self-employed workers, freelancers, and contractors across the UK, the coming months will be a learning curve. The government faces a stark choice: maintain its current course and risk the economic consequences highlighted by the IoD research or adapt its approach to balance worker protections with the economic incentives that creates opportunities for all.

The challenge remains with creating policies that protect workers without destroying the flexible, innovative economy that has made the UK an attractive destination for business investment and a viable option for self-employed workers. Without such balance, the government’s growth ambitions may remain elusive, leaving both employed and self-employed workers worse off than before.

If people don’t get hired, they can’t pay their bills. Unemployment benefit uptake will increase. Tax revenues will go down. If simultaneously employment and tax policies discourage or complicate self-employment, people won’t start businesses. Tax revenues will also go down. Employment will be in limbo.

When an economy goes for growth, companies historically hire. And right now, that isn’t happening. We are entering an economic era where companies and sectors will soar, thanks to automated productivity, but workers will not have equity in that growth as they did in previous economic booms. That is why the self-employed must have a spot at the table when such monumental shifts in employment policy and law are being shaped. If not, it could have lasting negative impacts on employment and economic growth.