Future-Proofing: Hedge Against the UK’s Economic Headwinds

We checked each headwind below against the latest official and independent data available on 24 September 2026. Then we asked a narrower question: which of them can a UK business offset by employing staff in South Africa through an Employer of Record (EOR)? Where an EOR makes little difference, we say that too.

1. Rising labour costs and the Employment Rights Act 2025

The Employment Rights Act 2025 raises the cost of a UK hire going wrong more than the cost of the hire itself.

The planned day-one right to claim unfair dismissal was abandoned and replaced with a requirement for 6 months’ qualifying service, alongside complete removal of the compensation cap, so unfair dismissal compensation will be unlimited. Sick pay has already changed: the three-day waiting period is gone, and the lower earnings limit that excluded some lower-paid workers has been removed. Guaranteed hours for zero-hours contracts follow in 2027, which hits flexible hiring hardest. Lewis Silkin sets out the full timeline.

The headline cost is smaller than many expected. The government revised its impact assessment down, cutting the estimated annual business cost from £5 billion to £1 billion. Our read: the direct cost is manageable. The real shift is behavioural, because uncapped awards after six months make every early hiring decision riskier.

What an EOR changes: staff employed in South Africa through an EOR fall under South African labour law, not the Employment Rights Act, and the EOR carries those obligations as the legal employer. South Africa is not a softer regime, since unfair dismissal protection starts on day one. The difference is that the process, and any CCMA dispute, sit with us. See what happens when a South African hire doesn’t work out.

2. Growth stuck close to 1%

UK growth is forecast to hover around 1%, so revenue is unlikely to outrun rising costs.

The OBR’s March 2026 forecast put GDP growth at 1.1% in 2026 and 1.6% in 2027, while the Treasury’s September 2026 survey of independent forecasts averaged 1.2% for both years, so the 2027 pickup the OBR expects is not widely shared (House of Commons Library). NIESR expects business investment to fall in 2026 because of the uncertainty caused by the war.

What an EOR changes: weak demand punishes fixed costs. Through an EOR you add capacity one person at a time, with no local entity, lease or placement fee, so costs track revenue more closely. See our case study on scaling a fintech engineering team without entity setup. The caveat: exits in South Africa still need a fair process, so an EOR is flexible on the way in rather than an off switch. If growth returns faster than forecast, the team can move into your own entity later, as covered in outgrowing your EOR.

3. A record tax burden

UK taxes are heading for a record share of the economy, and employer National Insurance is the part that rises with every hire.

The November 2025 Budget added £26bn in tax rises by 2029-30, with the tax burden set to reach 38% of GDP, the highest since the Second World War, and income tax and National Insurance thresholds frozen to 2030-31 (BNY Investment Institute). Employer National Insurance now applies above a £5,000 Secondary Threshold, substantially lower than the £9,100 level in force before April 2025. On a £45,000 salary, that change alone added £1,046 a year.

The next OBR Economic and fiscal outlook is due on 28 October 2026. With debt and borrowing costs still high, we would plan on the burden staying where it is.

What an EOR changes: South Africa has no employer National Insurance equivalent and no statutory employer pension contribution. Employers pay 1% UIF, capped at R177.12 a month, plus a 1% Skills Development Levy where total annual payroll exceeds R500,000. Veridian files both as part of our International Payroll & Tax Administration service.

4. Energy pushing inflation back up

UK inflation is rising again because of energy, so any plan that assumes the worst is over needs revisiting.

CPI inflation was 3.1% in August, up from 2.9% in July, with petrol and diesel making the largest upward contributions. Core inflation was 2.6%, unchanged from June and July. The House of Commons Library notes that the Middle East conflict and the associated rise in energy prices is expected to lead to higher UK inflation. NIESR adds that firms face rising labour costs, higher property-related taxes and increasing network energy charges.

What an EOR changes (partly): an EOR cannot lower your UK energy bill. It can stop headcount growth adding to it. South African staff work remotely or from equipped facilities through our integrated workspace and technology solutions, so new hires need no extra UK floor space, heating or power. South Africa has had no national load shedding since 15 May 2025, which we cover in 5 common misconceptions debunked.

5. Trade friction and unreliable routes

Moving goods in and out of the UK has become slower, costlier and harder to plan.

British Chambers of Commerce data showed a 20% drop in export activity to the Middle East as conflict escalated in March. NIESR expects net trade to contribute negatively to GDP growth in 2026. Tariff policy has swung too: the US tariffs introduced in 2025 have now been ruled illegal, and amounts paid under them may be refundable (BDO).

What an EOR changes (indirectly): services delivered by people do not travel in a container. A South African team working inside your systems faces no tariffs, freight surcharges or rerouting, and works one to two hours ahead of UK time. It will not fix a physical supply chain, but it does spread where your work gets done.

Our position

An EOR is a strong hedge against two of these headwinds, a partial one against two more, and only an indirect one against trade.

Headwind	How much an EOR helps	Why
Labour costs and employment law	Strong	Staff fall under South African law, carried by the EOR, on a lower cost base
Record tax burden	Strong	Statutory employer costs of about 1.4% of salary, against 15.9% in the UK
Growth close to 1%	Partial	Costs scale per head with no entity or lease, but exits still need a fair process
Energy-led inflation	Partial	New hires add no UK floor space; your existing energy bill is unchanged
Trade friction	Indirect	Services are not shipped, but a goods supply chain still is

We would not freeze hiring. A freeze protects this quarter’s cash and leaves you short of people when demand returns. The better hedge is to change where the next hire sits and keep the UK team for work that has to happen in the UK. UK organisations we support have offshored 42 functions that have grown to 189 employees, saving approximately £3.4m, backed by our more than 20 years in South African HR, payroll and labour law.

FAQs

Does the Employment Rights Act 2025 apply to staff employed in South Africa?

No. Staff employed in South Africa through an EOR fall under South African labour law, and the EOR carries those obligations as their legal employer.

Can an EOR protect my business from inflation and rising energy costs?

Partly. It cannot lower UK energy prices, but new hires add no UK office space and statutory employer costs stay near 3.5% of salary.

Next step

New to the model? Start with what an EOR actually is. Need board sign-off? Read the founder’s guide to making the internal case for offshoring. Ready to run the numbers on your roles? Contact us.