The UK jobs market shows signs of strain as rising costs and hiring challenges emerge, raising concerns about the impact of Reeves’ budget.
London: The latest labour market figures are raising eyebrows. As Christmas approached, the Office for National Statistics (ONS) was busy collecting data. Employers were just starting to wrap their heads around a budget that could add about £25 billion to their wage bills.
In December, pay rose as expected, hitting 5.6%. But the unemployment rate surprised many, coming in at 4.4%, higher than what City economists predicted. Plus, the number of job vacancies dropped for the 30th month in a row.
It seems like employers are still in a holding pattern, cutting back on hiring and staff. The looming tax rise is making everyone a bit anxious about what’s next.
Come April, national insurance contributions will jump to 15%, and the threshold will drop, meaning more part-time workers will feel the pinch. The minimum wage is also set to rise by 6.7%. Businesses are likely still figuring out how this will affect them.
Executives are weighing their options: should they cut jobs, freeze hiring, or limit pay raises? Or maybe they’ll just pass the costs onto consumers with higher prices.
Meanwhile, Reeves is off to the World Economic Forum in Davos, hoping to promote the UK as a prime spot for foreign investment. Her team is crossing their fingers that businesses won’t have to make tough choices.
The Treasury is hoping shareholders will step up and absorb some of the costs through lower dividends. They’re banking on the idea that this will lead to better economic growth and sales down the line.
However, the British Chambers of Commerce (BCC) isn’t so sure. They’re sounding the alarm, saying the labour market data and their own surveys show “warning lights” on recruitment and training.
They pointed out that 55% of firms plan to raise prices, mainly due to rising labour costs. It looks like shareholders might not shoulder much of the burden, and the specter of higher unemployment and more people relying on universal credit is starting to loom.
Anna Leach, the chief economist at the Institute of Directors, noted a drop of 47,000 in payrolled employees—the biggest monthly fall since 2020. That should definitely raise some red flags in Whitehall.
There are whispers that the government might sweeten the deal of higher national insurance by rolling back some proposed worker protections. Ministers are anxious to see how businesses react, fearing that the BCC’s findings show a reluctance to invest in the long run.
The employment rights bill aims to tackle issues like zero-hours contracts and improve basic rights from day one. But it seems some parts of this bill might get sidelined.
April could come and go without much fuss, but many significant businesses are already warning that the costs will show up in lower investment and higher prices—definitely not the outcome Reeves was hoping for.
