UK Budget Policies Under Fire as Recession Warning Issued

The Chancellor announced on October 30 that, from April, employers will face a higher National Insurance contribution rate rising from 13.8% to 15% on earnings above £175, while the threshold for these contributions will be lowered from £9,100 to £5,000 per year. Additionally, there is a 6.7% increase to the National Living Wage, meaning eligible full-time workers could see an annual increase equivalent to £1,400.

Critics argue that these measures could have unintended negative consequences. James Reed, Chairman of Reed, emphasized that the increase in National Insurance represents a significant tax on employment, which in his view is contributing to a marked decrease in permanent job vacancies. Recent data from a report by the Recruitment and Employment Federation for KPMG shows that the number of permanent posts dropped at the fastest pace since August 2020, with demand for staff declining and an increase in redundancies reported by recruiters.

Reed described the situation as akin to a slow-motion car crash, warning that if these trends continue, the resulting slowdown in hiring could pave the way for a recession. He noted that the north of England is particularly affected, where smaller business margins mean a 2% increase in payroll costs can determine the fine line between profit and loss. The current economic pressure is forcing businesses to reconsider expansion plans, reduce recruitment, and in some cases, let valuable employees go, indicating a potentially worsening labour market situation.