By Alex Fenton
UK unemployment is rising, and one in six young people cannot find work. AI is part of the story, but escalating employment costs are the bigger driver. As hiring becomes harder to justify at home, businesses are shifting new roles abroad and reshaping the future of Britain’s labour market.
UK unemployment has hit a five-year high of 5.2%. Youth unemployment has climbed to 16.1% – the worst figure since 2014, when the country was still dragging itself out of the financial crisis.
While the rise of AI plays a role, most business leaders say it’s the mounting costs that have made them hesitant to hire. In April 2025, employer National Insurance contributions increased from 13.8% to 15%, while the earnings threshold at which those contributions begin fell from £9,100 to £5,000, significantly raising payroll costs. At the same time, the National Living Wage rose by 6.7% to £12.21 an hour. Further pressure is expected from the upcoming Employment Rights Bill, which will ban zero-hour contracts and introduce day-one employment protections.
These policies are well-intentioned, and no sensible employer would argue against workers deserving fair pay and security. But here’s the uncomfortable reality: businesses are being squeezed to breaking point, and many simply can’t afford to keep hiring at home.
Since the pandemic, UK firms have been navigating a relentless storm. Inflation eroded margins. Energy costs exploded. Commercial rents climbed. And now, a wave of additional payroll costs has landed on businesses already operating on the edge. For a business employing fifty people at median wages, the combined impact of NI changes and wage increases can add hundreds of thousands of pounds to the annual payroll bill.
Business owners aren’t indifferent to their employees’ financial pressures. But wanting to pay people more and being able to afford to are two very different things. When policymakers talk as if employers can absorb any additional burden indefinitely, they often miss what employment looks like in much of the real economy: tight margins, seasonal volatility, intense competition, and limited pricing power.
This creates an impossible equation. How do you protect existing jobs, absorb rising costs, comply with new regulations, and somehow stay competitive? For a growing number of UK businesses, the answer has been to look abroad.
Offshoring used to mean faceless call centres and a race to the bottom on quality. Remote work has completely rewritten that narrative. The geographic friction that once anchored roles to the UK has largely dissolved. Finance, administration, marketing, customer service, technology: all of it can now be delivered from almost anywhere.
South Africa has emerged as a standout destination. Salary costs typically run 40–60% lower than UK equivalents because the cost of living is fundamentally different. Cape Town’s workforce is highly educated, English-speaking, and increasingly experienced working within UK business culture. The time zone is within one to two hours of London, making real-time collaboration genuinely functional. No missed mornings. No 3am calls.
There’s something pragmatic about this trend. Cape Town gains quality employment and economic opportunity. UK businesses gain the breathing room to survive. Companies that remain viable can protect the domestic jobs they do retain, rather than collapsing under costs.
This isn’t a story about businesses abandoning their principles or exploiting overseas workers. It’s a story about survival. Faced with existential financial pressure, most business owners have three options: cut domestic headcount sharply, close the doors, or find a model that keeps the whole thing moving. For a growing number of CEOs, offshoring represents option three.
As an entrepreneur, I back this entirely. The maths are undeniable. But as a Brit and a father, I find it troubling. Every role that moves offshore is a young person in the UK who doesn’t get their first job. Every graduate who can’t find work is a longer-term drag on the economy, on tax revenues, on the very public services the Government is trying to fund.
The Government’s instinct to protect workers is the right one. But protection without affordability isn’t protection, it’s an illusion. Raise the cost of employment too steeply and you don’t get better-paid British workers. You get fewer of them.
If ministers want to reverse this trend, they need to make hiring in Britain genuinely viable again. That starts with acknowledging the cumulative burden on employers and then redesigning policy to encourage job creation rather than inadvertently punishing it.
This could look like NI relief for new hires, or reduced employer NI on the first roles created in a given year, allowing businesses to expand without immediately triggering a disproportionate tax shock.
It also means investing seriously in AI upskilling so British workers can compete on capability, not just cost. Policy should make it easier to train and build productive teams in Britain, not easier to export the work elsewhere.
Finally, it means recognising a basic truth: without healthy businesses, there are no jobs to protect in the first place.
Governments cannot legislate prosperity into existence. They can only create the conditions for it. If hiring in Britain remains structurally unaffordable, the jobs will not disappear; they will simply be created somewhere else.
About the Author
Alex Fenton, Group CEO of The Legends Agency, is a serial entrepreneur with multiple successful exits. He founded GapCap, growing it to a $500m SME lender before its 2019 exit, and has led ventures including ThinkWorkforce. He now heads The Legends Agency and an SME lending group supporting UK businesses.
