Half of UK companies will cut jobs and two-thirds will recruit less staff, according to the boss of the UK’s top business lobby group.
CBI boss Rain Newton-Smith said Labour chancellor Rachel Reeves’ Budget has hit businesses, forcing them to consider expenditure on staff.
“Some of the decisions taken at the budget have made it harder for businesses to invest, to take a risk on people and to create more jobs,” said Ms Newton Smith. “Our survey showed that half are now looking to reduce headcount. Almost two-thirds are looking to cut their plans to hire”
She added that executives are asking, “Can we afford to invest? Can we afford to expand? Can we afford to take a chance on new people?
“Well after the Budget, the answer we’re hearing from so many firms is still ‘not yet’.”
In the October Budget, Ms Reeves announced a nearly £70bn uplift in public spending, partly funded by sharp increases in business taxes such as employer national insurance contributions.
Labour also raised the minimum wage and pledged to make it harder to sack workers.
In response, retailers including Tesco, Sainsbury’s and Marks & Spencer have warned that they will face a £7 billion jump in their costs because of the tax increases, which includes a rise in employers’ national insurance, and said job losses were “inevitable”.
Max Mosley, senior economist at the National Institute of Economics and Social Research said that the UK’s economic participation rate is still one of the best in the world “and it’s something we should be quite proud of.”
The UK is targeting having 80 per cent of the population in a job, which would put it in the top few countries in the world, he said.
While employers may sabre-rattle about added costs, because they are still making decent profit margins, despite high inflation in recent years, there may be no need to cut jobs.
“On the other hand,” he says, “businesses point out there have been successive shocks” for them to weather, like cost increases, minimum wage increases, the pandemic and other unwelcome surprises, “so I do sympathise somewhat.”
If job cuts come, it will push up an unemployment rate that has been slowly climbing, albeit from a low starting point.
Unemployment in the UK at 4.3 per cent is not far off all-time low rates, although it is slowly rising, according to data from the Office for National Statistics. It still means about 1.5m people are out of work.
Summer 2022 saw rates of 3.6 per cent, only just above the all-time low of 3.4 per cent in 1973.
Unemployment was stubbornly high through the 1980s and most of the 1990s, staying above 6 per cent from 1980 to 1997 and hitting a peak of 11.9 per cent in 1984.
It rose again in the wake of the financial crisis, hitting 8.5 per cent in 2011, but it then fell to below 4 per cent in 2019 before the pandemic caused another spike.
The unemployment figures only cover people seeking a job. A bigger concern for the government is the number of people of working age who are economically inactive.
Plenty are students, but plenty more are sick. Since the pandemic, fewer Britons as a percentage of the population have returned to work compared to other such G7 countries like Germany and the US.
The government spending watchdog, the Office for Budgetary Responsibility has suggested that being ill following the pandemic has hit the UK more than other countries.
But these figures could be painting a bleaker figure than in reality, according to the Resolution Foundation think tank, which estimates that official stats may have “lost” 1 million workers, making the statistics considerably less dire.
It points to the healthy number of vacancies available, suggesting unemployment may not be as feared, while also offering a ray of hope for those who may find themselves out of work.
While down from its peak of more than 1.3m in 2022, there are still 831,000 vacancies in the job market, higher than pre-pandemic levels.
A government spokesperson said: “Last month we delivered a once in Parliament budget to wipe the slate clean and deliver change by investing to repair the NHS and rebuild Britain, while ensuring working people don’t face higher taxes in their payslips.
“That meant difficult choices to repair the public finances and to put public finances on a firmer footing. However, the alternatives were more austerity, more decline and more instability that would have left businesses and working people worse off.
“Despite the difficult inheritance, the government is determined to go for growth and to work in partnership with businesses to invest in Britain’s future so we can make every part of the country better off. That is why the Government is reforming the planning system, tackling barriers to trade and taking forward the £63 billion of private sector investment announced at the International Investment Summit.”