Hundreds of thousands of businesses plan to lay off workers amid a jobs market freeze after Rachel Reeves’s October budget, several surveys showed on Monday.
Redundancies and unemployment are expected to increase after the chancellor’s £25 billion rise to employers’ national insurance contributions (NICs) takes effect next month.
An employment index compiled by the consultancy BDO slid to 94.30 in February from 94.72, towards levels last seen in the aftermath of the 2008 global financial crisis. Separate figures from KPMG and the Recruitment and Employment Confederation (REC) showed that vacancies had contracted at the second fastest pace in nearly five years last month and wage growth slowed to a four-year low.
The surveys underscored the deterioration in the labour market, which had held up well amid sluggish economic growth, since Reeves’s inaugural budget last autumn. In response to the NICs rise, companies threatened job cuts and price rises. From early April the minimum wage will rise by 6.7 per cent and the main rate of employers’ NICs will rise to 15 per cent from 13.8 per cent.
Kaley Crossthwaite, partner at BDO, said: “Business growth is happening, but it is in a fragile state.”
Neil Carberry, chief executive of the REC, described hiring as slow owing to companies “holding their breath in the face of significant costs rises from April with changes to national insurance and the national living wage”.
Reeves also lowered the earnings threshold that triggers employers’ NICs to £5,000 from £9,100. This move, alongside the steep minimum wage increase, means that small businesses and companies that employ lots of low-paid staff will find their costs rising rapidly.
Research from the lender Iwoca found that more than 300,000 small business owners intended to sack staff to cope with the national insurance increase. It said that 31 per cent of 500 owners surveyed by Iwoca said they planned to reduce pay rises and 27 per cent said they would delay promotions.
The chancellor is said to be considering cutting government spending, mainly via the welfare bill, this month to stay within her fiscal rules. New forecasts from the Office for Budget Responsibility, the UK spending watchdog, on March 26 will reveal that her £9.9 billion of fiscal headroom has disappeared owing to weaker-than-expected economic growth and a sharp rise in government borrowing costs.
An index of business confidence from BDO also slid to 91.40 last month, the worst reading since January 2021, when the country was still in the grip of the Covid-19 crisis.
City analysts have warned that economic surveys overstate the hit to the jobs market from the national insurance rise, which equates to less than 1 per cent of gross domestic product. The REC-KPMG data also showed that appointments of workers into permanent positions declined at a slower pace in February. Official estimates from the Office for National Statistics indicate that unemployment is low at 4.4 per cent, although there are concerns over the reliability of that data.
An HM Treasury spokesman said: “Lloyds Banking Group reported last month that business confidence is at a six-month high. Since the general election, there have been three interest rate cuts, real wages are rising at the highest level in six months and working people’s payslips have been protected from high taxes. The world is changing. That’s why the government is going further and faster to deliver our Plan for Change to kickstart economic growth and put more money in people’s pockets.”
