Rachel Reeves's tax raid is to blame for rising unemployment
The line that Rachel Reeves' decision – namely her £25 billion employer national insurance tax raid – is hampering the job market is becoming a strong one. Andrew Griffith, shadow business secretary, said: 'Unemployment is the only thing growing under Labour.' As Reeves weighs up tax rises likely to fall heavily on businesses to plug fiscal holes, it's an area we can expect the opposition to continue to push on.
Meanwhile, pay rises slowed to their lowest pace in three years – though they remain well above inflation. The average worker saw 5 per cent pay growth in May, which the Bank of England is taking as a sign that the labour market is no longer pushing up inflation. That has led Bank Governor Andrew Bailey to talk up the prospect of a rate cut next month. But as I write in today's Spectator cover story, many critics would argue that the job of taming inflation – which rose to 3.6 per cent yesterday – is not yet done.
The Bank is right to worry about the labour market given the rise in unemployment. Vacancies were down again by 56,000 to 727,000 – the 36th consecutive fall. Some 14 out of 18 sectors tracked by the ONS saw fewer jobs advertised. But focusing on propping up the labour market before inflation has been properly squeezed out of the system seems a dangerous move.
With the Government's new Employment Rights Bill still to come – bringing additional costs and legal risks for employers – things could get even worse. Many businesses may simply shut up shop or quietly stop hiring and replacing staff who leave, compounding the jobs slump. In the end, it's likely to prove that any tax is a tax on working people.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Telegraph
3 hours ago
- Telegraph
Tax rises killing off pub summer holiday jobs, warn bosses
It's a been rite of passage for university students for decades. But now Rachel Reeves's tax raid risks killing off the traditional pub summer holiday jobs amid a sharp slump in hospitality vacancies, bosses have warned. Job openings in the hospitality sector - which includes pubs and restaurants - fell by over 22,000 in June compared to the same month a year earlier, according to figures from the Recruitment and Employment Confederation (REC). Industry groups have warned the sharp drop risks 'the death of the great British summer job' as students finishing up college and university struggle to find work behind the bar during their holidays. Britain's pubs and restaurants have long been a source of temporary work for thousands of students across the country. It adds to the mounting worries for young people who are facing a challenging labour market this summer. Neil Carberry, the chief executive of REC, said the fall in vacancies was a 'red flag' for the wider UK economy. 'Hospitality is one of the UK's biggest entry points into work, but right now, we are shutting people out before they even get a foot in the door,' he said. Many hospitality businesses have put a freeze on hiring or cut jobs following Ms Reeves's tax raid in the autumn Budget, which increased the cost of employing staff by raising employers' National Insurance Contributions. Mr Carberry said the decline in open roles 'puts recruiters, hospitality businesses and customers under massive pressure to make the most of the short-lived English summer'. According to the trade body UKHospitality, the Chancellor's tax raid added £3.4bn in costs to hospitality businesses. Around 84,000 jobs have been lost in the sector since last year's autumn Budget as companies attempt to shed workers following the rise in labour costs. The jobs fall comes at a time when the British tourism industry is booming, with visitors making the most of a warm start to the summer. Spending on day visits by tourists in England climbed to £48.4bn in 2024, up 6pc from a year earlier. According to the latest monthly figures, Britons went on 68.6m trips within the UK in April, a 10pc increase from the same month in 2023. Despite the strong visitor numbers, the hospitality and tourism sectors have been left grappling with mounting costs following last year's autumn Budget. Allen Simpson, the chief executive of UKHospitality, said the decline in vacancies was 'sadly reflective of the impact we have seen from increased costs over the past nine months – less employment, less opportunity and less growth in the economy'. The warnings over hospitality roles came as figures released by the Office for National Statistics earlier this month revealed that the number of jobs advertised across the country fell to 727,000 in the three months to June, down from 783,000 for the previous three-month period. Mr Simpson called on the government to 'reverse the damage' facing the hospitality industry. 'That starts with fixing NICs, lowering business rates and cutting VAT for hospitality businesses,' he said. The hospitality industry has borne the brunt of the Chancellor's tax raid. Earlier this month, the British Beer and Pub Association warned that one pub a day would shut across Britain this year as publicans battle surging costs, including Ms Reeves's £25bn National Insurance raid and an increase in the minimum wage. The Treasury was contacted for comment.
Telegraph
3 hours ago
- Telegraph
Rachel Reeves won't break her fiscal rules, she'll destroy them
For those not paying attention, this Labour Government is turning deception into a fine art. The technique is simple enough: make a pledge that seemingly provides reassurance, then drive a Challenger tank through the pretence, while claiming the literal promise has been maintained. The obvious example is Labour's pledge not to raise the taxes of working people. From the Prime Minister, Sir Keir Starmer, to the Chancellor, Rachel Reeves, on to the Chief Secretary to the Treasury, Darren Jones, and any Labour minister being grilled in an interview, the mantra is repeated. Income tax, employee National Insurance contributions and VAT have not been increased – so there have been no taxes raised on working people. The undeniable fact that increases in employers' National Insurance contributions and other taxes result in costs being borne by working people causes no shame, no embarrassment and no admission of a promise being broken. The next big promise to be broken but not betrayed is that the tax and spend plans of Reeves will stay within the fiscal rules she has set herself. By this, the Chancellor means that a responsible government matches its day-to-day spending with its income and only borrows to invest. The latest public borrowing figures have taken a howitzer to this pretence, effectively blowing it out of the water. The deficit for June was £6.6bn higher than the same month last year, while the gap has grown by £7.5bn when you compare this financial year to the previous – and we're only three months in. Andrew Sentance, a former Bank of England economic adviser who served on its Monetary Policy Committee for five years, suggests the 'deficit for 2025/26 [is] heading for £170bn, 5.5-6pc of GDP, even higher than last year – totally unsustainable and over £50bn above the OBR forecast'. Unfortunately for the Government, the many tax rises Reeves announced in her Budget of October 2024 accelerated behavioural responses in the British public to avoid tax increases. The result has been – at best – erratic economic growth, unpredictable tax revenues and a rise in borrowing to meet its everyday commitments. In reality, Reeves is borrowing now to pay for past borrowing and Labour's additional spending that we cannot afford. That is why even the dogs in the street are barking loudly about higher taxes being necessary for her next Budget to stay within the fiscal rules. Were Reeves to abandon her talk of supposed prudence, there would likely be a market response akin to her experiencing skydiving without a parachute. What can the Chancellor do to avoid such a fate? This was signalled in March 2024, when in her Mais Lecture, she revealed an approach to debt financing that would augur greater use of the EU's style of borrowing that, like old Private Finance Initiative (PFI) schemes, could be used to 'invest' in net zero and other politically driven infrastructure. It will keep some beneficiaries in the private sector happy while allowing Labour to claim it is making investments for our future without driving up the debt burden. Bob Lyddon, an international banking and finance consultant, explained her cunning plan in his paper Decoding Rachel Reeves and remains convinced that while tax rises to meet everyday funding will undoubtedly be necessary, the Chancellor will attempt to balance her bromides with honeyed announcements of grand schemes that promise much but deliver little. Reeves signalled how a small amount of 'borrowing for investment' by the Government could be multiplied by having intermediate public entities (like Great British Energy and the National Wealth Fund) borrow as well, and by the resultant schemes also borrowing, this time from investment companies like BlackRock and UK pension schemes. The result will be an Enron-style debt mountain costing 10pc per annum plus the repayments, all falling on the hapless UK business and personal taxpayers one way or another. It is an EU 'bait and switch' that grows off-balance sheet debt that eventually crystallises and has to be paid, just like off-balance sheet PFI still has to be paid. This vision is consistent with Labour's ambition of realignment with the EU and will result in the UK experiencing the same sub-optimal levels of economic growth. It allows Labour to say it is meeting its commitments to splurge great dollops of money into our economy without us feeling the hit. The price would be paid over a 50-year-long commitment that will not immediately result in higher taxes but will drive up the running costs of the public sector. We should be afraid. When Reeves talked up the supposedly halcyon days of Gordon Brown's grandiose public borrowing and especially his use of PFI 'investment' she ignored how it still costs us billions to repay today. The total PFI payments from 1996/97 up to the final transaction not due until 2052/53 are £278.3bn – representing an astonishing 555pc of the £50.1bn capital sum. Of the total of 669 PFI contracts, 588 were under Labour's Blair and Brown governments. An estimate by the Left-leaning Institute of Public Policy Research (IPPR) priced £13bn of Labour's 1998 PFI-funded NHS capital investment to have a cost of £80bn, and by 2019, it still had £55bn to pay. My money's on Lyddon being right, meaning Labour's next big political double-cross will be to say its fiscal rules are being met when she's driving that tank right over them. While she distracts us with carefully composed doublespeak about the need to increase taxes (because Reeves knows no other way to make her numbers add up and will not be allowed to cut spending), hidden borrowing will be conjured up, too. Ultimately, that will mean yet further tax rises for our grandchildren and their children too. Whether or not our economy or our people can bear it, we shall never know – for none of us are likely to be around to see the carnage.
The Independent
4 hours ago
- The Independent
There is a way to boost economic growth without spending money
Repeatedly, we hear Keir Starmer and Rachel Reeves are putting pressure on ministers and departments to generate ideas for economic growth. So, here is one: the third sector. Start using the civil society, as it's also called, to its full potential, to drive the economy. A new report from the Gradel Institute of Charity at Oxford University, A Third Way of Doing Growth, makes a persuasive case for a fresh look at this frequently ignored national resource. Research by Pro Bono Economics for the study suggests the third sector creates at least £39.5bn of economic value a year if volunteer hours are factored in – and well over £100bn if the full economic contribution by the sector is assessed. Adds the report: 'Statistical evidence also shows that there are many persistent societal challenges that the third sector can often tackle more effectively (and therefore more cost-efficiently) than the public or private sector alone.' So, a win-win. Stephen Bubb, executive director of the Gradel Institute and a former head of the charity leaders' representative body, Association of Chief Executives of Voluntary Organisations, argues that a huge opportunity is being missed. 'The government should think about the third sector and how they can harness its energy and strength,' he says. Bubb said similar to Tony Blair in his third term as prime minister. The result was the appointment of Ed Miliband as the first third sector minister and a white paper. As with many such initiatives, it was promptly forgotten as the government changed. It was resurrected, of sorts, under David Cameron with his 'big society' push. 'Cameron got the point about how civil society could be used more,' says Bubb, 'but he tried to implement it at the same time as the austerity programme.' As a result, it never took off. What is different this time is that Labour are desperate for something new that does not involve the spending of vast sums of public money. The report makes a few key recommendations. Firstly, deliver better social business models for social care. Currently, the market is dominated by private firms, which are mostly extractive, putting little back, taking out their profits. New businesses mean new jobs, new tax revenues, and significant net gains for local economies. Secondly, focus on prevention to reduce crisis management. A lot of the focus in the third sector is on assisting people once they are in crisis. 'The prisons are full,' says Bubb. 'The state is hopeless at rehabilitation. Charities are good at it, they know what they are doing. Prisoners leaving and going into jobs is seeing them making a positive contribution to society, to the economy. Charites are better at helping them in securing work than the state. It's the same with mental health – the charities' record in this area is also much better.' Rebuild social connection to drive social mobility. A decline in investment in public social infrastructure, combined with Covid and the rise of social media, has led to 'a crisis of social connection in the UK – one of the most important factors in social mobility and economic inclusion,' the report says. The problem is especially acute among the nearly 1 million young adults not in employment, education, or training (Neets). 'The most effective means to engage this cohort is through charitable and voluntary institutions which – through community-based approaches and one-to-one engagement – have a proven ability to connect with those most distant from society.' Help government rewire delivery of public services. Starmer has talked about his ambition for a 'complete rewiring of the British state' to better serve the needs of the people. 'By involving the third sector in this endeavour, government has enormous potential to move away from for-profit commissioning to innovating services built around people's real-life needs and a far greater focus on rewarding organisations based on the outcomes achieved.' To that end, they suggest creating a 'Civil Society Satellite Account' in the national accounts, so there is clarity as to the third sector's full value (similar to how tourism and other sectors are treated). Sixteen countries already do this, but not the UK. They also recommend opening up public sector procurement to the third sector to transform service delivery. Of the £350bn a year that the government spends on procurement, only £21bn is administered by the third sector, meaning their skills, abilities and perspectives are simply not being efficiently deployed. Other suggestions include: building a national programme of volunteering, aimed particularly at those 18-25 Neets; and creating innovative partnerships to rebuild the social infrastructure critical for inclusive growth. As Bubb says: 'It is not so much a policy shift but the better, more focused use of an enormous resource.' It also plays to Labour ideology. Put like that, you do wonder what Starmer and Reeves are waiting for.
