Recruitment agencies: The government’s free recruitment service is coming for your business

Free government competition, the April 2026 umbrella company liability bombshell, and a white-collar jobs crisis. Welcome to recruitment in 2025/26. Here’s what you need to know and how to prepare

The government has launched a major push to convince businesses they don’t need you. Plus, with April 2026 bringing a regulatory change that could bankrupt unprepared agencies, the next five months could prove crucial to any firm’s survival.

What the government is offering (and why it matters)

The Department for Work and Pensions has gone all-in on a national campaign urging businesses to use Jobcentre Plus’s free recruitment services. They’re targeting the sectors that keep many agencies afloat: manufacturing, logistics, retail, hospitality, health and social care, and construction.

The pitch is simple: why pay £6,125 per hire (the CIPD’s average) when you can get it for free?

Only one in five businesses has used Jobcentre Plus in the past year, despite over half of employers struggling to find candidates. The government wants to change that. Fast.

At first glance, many recruitment firms may not see this move as a threat to the £43 billion recruitment industry. But at a time when agencies are already grappling with intensifying competition, declining vacancy rates, and looming regulatory changes, this could add another unwelcome challenge to the list of operational worries.

The JCP recruitment campaign

The initiative targets high-vacancy sectors, including manufacturing, logistics, retail, hospitality, health and social care, and construction, offering no-fee professional recruitment services to businesses of all sizes.

Secretary of State for Work and Pensions Pat McFadden emphasised that these partnerships are “crucial to our Plan for Change, helping us break down barriers to growth.”

What they’re offering:

Bespoke training through Sector-Based Work Academy Programmes (candidates get skills training, work placements, and guaranteed interviews):

• CV shortlisting and interviews at the jobcentre
• Free vacancy advertising
• Dedicated account managers
• Help setting up work experience and apprenticeships
• Guidance on employing people with disabilities

Starbucks is already singing their praises. Kiera Hope, their Talent Acquisition Specialist, said:

Our partnership with the DWP and local Jobcentres across the UK has been incredibly beneficial. Both our District Managers and Store Managers now actively lean onto Job Centres as a go-to resource for filling vacancies quickly and effectively.

The jobs they’re targeting

At first glance, many recruitment firms would not see the new campaign as a threat. However, when major employers start publicly endorsing free government services over paid recruitment, then it may be worth further investigation.

Jobcentre Plus focuses on bulk hiring and entry-level positions across retail, warehousing, health and social care, hospitality, construction, logistics, and office admin roles. If that sounds like your bread-and-butter business, you might have a problem.

Should recruitment agencies be worried?

This isn’t happening in a vacuum. According to JobAdder’s Recruitment Agency Benchmarking Report:

• 67% of recruiters face increased competition for clients
• 42% have been impacted by mass redundancies
• 56% report reduced hiring despite 39% seeing more candidates
• Only 35% of candidates now turn to agencies first

The white-collar squeeze

While Jobcentre Plus targets entry-level roles, agencies are simultaneously working on mass redundancies in their traditional white-collar markets.

Recent data shows significant job cuts across professional sectors. Major consulting firms, including Deloitte, Ernst & Young, KPMG, and PwC have collectively cut over 9,000 jobs, while large employers such as Salesforce, Morgan Stanley, Google, Meta, Amazon, and Microsoft have laid off thousands or are soon announcing redundancies.

This has created an oversupply of professional candidates competing for fewer positions, potentially forcing some white-collar job seekers to consider freelancing, fixed-term contracts or relocating to regional cities to secure work or accepting roles below their qualification levels – areas where the government’s free service could capture additional market share if agencies do not act on these trends.

April 2026: The date that changes how agencies handle risk

Forget the government competition for a moment. The major operational threat is regulatory.

From April 2026, recruitment agencies supplying workers through umbrella companies become liable for PAYE errors – even though the umbrella company handles the payroll.

If the umbrella company you work with messes up the tax, you’re on the hook.

The numbers are eye-opening.

HMRC data shows:

• 700,000 contractors worked via umbrella companies in 2022-2023
• At least 275,000 were engaged by non-compliant umbrella firms
• £500m was lost to tax avoidance schemes, almost all facilitated by umbrella companies
• The government expects to raise £895m in 2026/2027 – largely from agencies caught out

Crawford Temple, CEO of Professional Passport, an independent assessor of payment intermediary compliance,  believes those already running tax avoidance schemes will be trying to make as much money as they can before April 2026.

He said:

HMRC’s updated guidance on Joint and Several Liability confirms what I have been saying all along: agencies will carry liabilities they cannot control. The manual makes it clear that if an umbrella fails to meet its PAYE obligations, HMRC will pursue recovery from the relevant parties in the chain – recruiters included.

Crawford also said the guidance validates the warnings about monthly checks and so-called ‘guarantees’ which do not remove the exposure.

He said, “The only way for agencies to eliminate risk is to take direct responsibility for PAYE payments.”

In the words of the HMRC: “It does not matter which party pays or how much each party pays as long as the amount is paid in full”.

Seb Maley, CEO of contractor insurer, Qdos, explained:

From 2026, making recruiters and businesses responsible for ensuring the correct PAYE deductions is designed to help protect the 700,000 or so people working via these intermediaries. In some ways, the government is asking the wider supply chain to police the compliance of umbrella companies and carry the can from a tax perspective if tax avoidance has taken place.

Dave Chaplin, CEO of IR35Shield and Contractor Calculator, who attended an HMRC webinar, said things are more black and white now on where the risk lies:

There was one Q&A which summed it all up: So, being a simpleton, in simple terms, no matter what checks you carry out, when there is an issue with a payment of PAYE, HMRC will ultimately go after the agency?  So, the agency carries all the risk?

HMRC’s response? ‘Yes.’”

Where agencies still have an edge

It’s not all doom and gloom. Agencies still have advantages – if you play to them.

According to a Bullhorn report, Top-performing firms are “doubling down” on specialised, high-margin verticals, such as:

• AI training for legal professionals
• Compliance consulting for banks and niche government contracting roles

Arguably, these are areas where Jobcentre Plus simply can’t compete.

The Bullhorn report also suggested clients increasingly want comprehensive workforce solutions such as Managed Service Provider and Recruitment Process Outsourcing, and direct sourcing models. Clients want integrated services that blend project consulting, talent delivery, and workforce strategy.

Some industry sources suggest the market will consolidate around a smaller pool of compliant Managed Service Companies, likely owned by financial investors who can afford robust compliance infrastructure.

However, such deals could be put on hold as ICAEW research backs up overall business sentiment that suggests it’s too expensive to do business in the UK.

The key is making it crystal clear to clients what you can provide before they’re tempted by free alternatives:

• More sophisticated candidate vetting
• Faster turnaround times
• Guarantees a free government service can’t match
• Expertise in senior and highly technical roles

What agencies are doing to stay competitive

Looking ahead, 67% of agencies are investing in business development, with 75% focused on securing new clients and 72% on strengthening existing relationships. Despite everything, 56% remain optimistic about industry growth.

But optimism without action is just hope. Here’s what to do before April 2026

• Audit every umbrella relationship immediately – verify PAYE compliance of every umbrella company in your supply chain
• Set up monitoring systems to regularly check contractor payslips and tax deductions
• Investigate tax liability insurance – new products may emerge for this risk
• Review your contractor strategy – are umbrella placements still viable given the liability?
• Get legal and tax advice now – understand your full exposure

Strategic moves

• Specialise hard – focus on high-margin verticals and complex placements where expertise commands premium fees
• Target premium market segments – senior roles, specialist positions, sophisticated vetting that Jobcentre Plus can’t deliver
• Become a strategic advisor – not just a placement service
• Leverage technology – deliver faster, more reliable results than free government services
• Develop value-added services – offer guarantees and comprehensive workforce solutions
• Keep your finger on the pulse; make phone calls
• Track client behaviour – are inquiries changing following the government campaign?
• Watch umbrella market consolidation – be ready for fewer compliant providers and higher costs
• Monitor HMRC enforcement – activity will ramp up leading to April 2026

The recruiter’s reality

Free government recruitment services, April 2026’s umbrella liability changes, and a challenging job market will put more demands on agency staff. Agencies that survive will demonstrate clear value beyond free government services whilst managing unprecedented regulatory and financial risks.

For businesses choosing between free government support and paid recruitment, it’ll come down to role complexity, hiring urgency, and desired candidate quality.

For agencies, the choice is simpler. Adapt now in preparation for April 2026 or become obsolete.