British companies are cutting jobs at the fastest pace in four years following Chancellor Rachel Reeves’s £25 billion payroll tax raid, according to new data from the Bank of England.
The central bank’s latest decision-makers panel, which surveys around 2,000 chief financial officers, found that employment fell by 0.5% in the three months to August — the steepest decline since 2021. The survey also revealed that companies plan to cut jobs over the next year at the quickest rate since October 2020, when the UK was emerging from pandemic restrictions.
HM Revenue & Customs data shows payrolled employment has contracted by more than 160,000 since last October’s budget, when Reeves announced a £25bn rise in employer National Insurance contributions. Losses have been concentrated in retail and hospitality, two of the UK’s biggest employers.
UKHospitality described the scale of job losses as “staggering”, while the British Retail Consortium warned that any further tax rises would force businesses into “difficult choices about the future of shops and jobs.” More than half of all jobs shed since the budget have been in the low-wage hospitality and retail sectors.
The British Chambers of Commerce has also cautioned that firms are preparing for a hiring freeze as higher employment costs take their toll.
Retailers reported in July that sales growth was “barely touching the sides” of the £7bn in extra costs imposed at the last budget. Business groups have consistently warned Reeves that further tax rises in her 26 November budget would choke off growth and undermine fragile momentum in the labour market.
Former Bank of England governor Lord King of Lothbury said Labour’s election pledge not to raise income tax, VAT or employee NICs had left the Chancellor with few options. Speaking to Times Radio, he said: “By ruling out those rises, the government boxed themselves in. Their only freedom is to cut spending, and when they tried, their MPs rebelled. They face a serious challenge ahead.”
The Bank of England has been placing greater weight on its own surveys after a fall in responses to the Office for National Statistics’ labour market data. Its latest poll also showed inflation expectations rising to 3.4% for next year, up from 3.2% in July and well above the Bank’s 2% target.
Official figures show inflation hit 3.8% in July and is forecast to peak at 4% in September, a figure that will be used to uprate pensions and benefits next April.
Despite concerns over jobs and inflation, investors expect the Bank to keep interest rates at 4% for the rest of the year, after five cuts in the past 12 months.
Long-term government borrowing costs climbed to their highest level in nearly three decades this week before easing on Thursday.
The Treasury defended the government’s record, insisting it remained “pro-business”. A spokesperson said: “Services sector activity is at a 16-month high and business activity is at a 12-month high. We are a pro-business government that has created 380,000 jobs, helped interest rates to fall five times, struck three major trade deals with the EU, US and India, reformed business rates, and capped corporation tax at 25%.”