Workforce challenges
Employers face a wide range of workforce challenges
AI is presenting a unique challenge for employers. It is a crucial driver of increased productivity and growth for tech businesses. But it’s also the key reason tech workers are losing their jobs. And it’s driving challenges around talent, training and engagement too.
Frequent redundancies have hit morale in the sector. Maintaining employee engagement is now the most impactful challenge facing UK tech businesses, reported by 22% of our respondents.
In April 2025, UK businesses were hit as increases in employers’ national insurance contributions (NIC) and the national living wage took effect. Unsurprisingly, the cost of UK talent was the biggest challenge for 19% of our respondents. The increase in NIC was also the main contributing factor for 17% of businesses that have reduced their headcount this year.
Upskilling non-technical staff was the third most popular response for biggest workforce challenge, affecting 17%. This demonstrates that many businesses investing in AI do not feel their staff are able to properly use its capabilities.
Current workforce challenges faced
reduced their headcount in the previous year
Headcount changes in the last year
Tech businesses still reducing headcount
Although tech companies are optimistic about growing in the coming year, over a quarter of respondents (26%) had still reduced their headcount in the previous year.
AI was the main reason businesses had reduced their workforce, with 51% letting go of employees because roles have been augmented or replaced by AI solutions. That was significantly more than the next most popular answer, with only 23% citing wider economic changes as the reason for layoffs.
Employers will have to carefully manage this balance of AI adoption and its impact on workers going forward.
19% want greater numbers of inbound skilled workers
Skills shortages are a key challenge
UK tech businesses are facing a lack of future-proof skills. Almost half of respondents highlighted challenges relating to talent, training and skills shortages.
When asked what businesses believe will be critical to the UK becoming a global leader in AI, 19% of respondents said greater numbers of inbound skilled workers and 15% want government action on addressing skills gaps.
Attracting more overseas talent to UK tech could be a solution to both skills shortages and rising costs for UK employees. However, skilled immigration is dropping massively, with 30% fewer migrants applying for a visa to work in UK tech in 2024 than in 2022.
Our view
Workforce will be the most significant challenge for many businesses in 2026. Morale in the once-exciting tech industry has been hit by years of persistent layoffs. There is a skills shortage as skilled workers leave the UK and fewer overseas talent applies to come here.
Skills are as important as infrastructure if the UK is to deliver growth and achieve its ambitions of being a global tech leader.
Workers in tech will continue to face uncertainty as AI creates and removes jobs in the coming years. The industry needs to respond by investing in training to upskill experienced tech workers for the roles that will drive growth.
