UK startups are trying to save cash by scaling back hiring plans, ahead of increases to employer tax contributions and falling VC funding in the second half of 2024.
Founders, VCs, tax experts and industry watchers tell Sifted that some tech companies in the country are scrapping recruitment drives ahead of a tax hike on employers’ national insurance contributions (NIC) and rising capabilities of AI automation.
The average number of new UK roles posted monthly on startup jobs platform Welcome to the Jungle fell 21% between September and February, compared to the previous six months.
The number of new roles in all job functions the platform tracks fell, with those in marketing, HR and software engineering seeing the biggest drop offs.
“This year we’ve seen companies be more cautious,” says Caroline Fischer, UK country manager at Welcome to the Jungle. “National Insurance increases have meant that companies are being really budget conscious in looking at how much they’re spending on people.”
Tax hikes
Late last year, the UK announced in its Autumn Budget that it would be hiking employers’ national insurance contributions (NIC) from 13.8% to 15%, amid a raft of tax rises that impacted entrepreneurs.
“Increases to NIC have had a clear effect on a number of startups’ hiring strategies, leading many to pause new hires, or consider redundancies, while they manage the current economic climate,” says Alex Fisher, partner at employment law firm Goodwin.
“We are seeing many startups, particularly smaller ones, remaining cautious about hiring at this stage and we see that continuing.”
Earlier this month, entrepreneur network Helm found that more than a third of 400 small and medium-sized businesses — 50% of which were tech startups — had frozen hiring plans or cut staff due the employers’ national insurance increases.
“It’s more expensive to hire people and the economic outlook for startups in the UK is bleak,” says one UK founder — speaking to Sifted on condition of anonymity — who’s paused hiring and laid off some staff in response to tax increases.
In another sobering year for VC funding in the UK, startups picked up just €7.3bn ($7.9bn) in the second half of 2024, according to Sifted data, the lowest figure since the first six months of 2020, according to comparable data from Dealroom.
Some startups are increasingly hiring employees offshore, in jurisdictions where tax implications are lower.
“We have empirical evidence that UK companies are increasingly looking to relocate jobs offshore in response to the announcement of employer National Insurance contribution increases,” says founder of HR tech platform Effer Ventures, Alex Fenton.
The rise of AI agents
Founders also tell Sifted they’re leaning on AI agents to reduce the number of roles they need to hire for.
Shareback, which builds AI tools for businesses, tells Sifted it has reshaped its hiring strategy due to automation.
“Last September, we anticipated growing our team to around 15 members by now,” says founder Lauren Ladd. “Instead, we remain a lean team of four, thanks mostly to the contextualised AI agents we’ve built on Shareback.”
Ladd tells Sifted that Shareback now automates operations and marketing tasks, and user experience and interface functions are now managed by a single person. Front-end and back-end engineering are handled by one engineer using AI coding agent company Cursor’s platform.
“We’ve transitioned from hiring specialists to generalists, enabling our lean team to effectively span multiple functions and significantly reduce our hiring needs,” Ladd says.
Read the orginal article: https://sifted.eu/articles/uk-startups-scale-back-hiring-plans-news/
