The latest jobs figures are out – and it’s bad news for the chancellor

The number of vacancies has fallen below pre-pandemic levels for the first time since 2021. This, combined with the incoming employer NICs hike, will all but destroy the ‘working people’ Labour claims it seeks to protect, writes James Moore

During her autumn Budget, Rachel Reeves hiked employer national insurance contributions (NICs) to plug a gaping hole in the public finances, claiming this was not a tax on “working people”. The move not only made waves in the business sector, it also went against what Labour had repeatedly promised not to do during their election campaign.

However, proof that the NICs increase absolutely is a tax on working people was writ large in the latest Labour Force Survey (LFS) from the Office for National Statistics (ONS). It showed that while weekly wages had grown by 5.9 per cent in the three months to February, job vacancies slumped to a four-year low in that same period.

Doubts about the accuracy of the data produced by the LFS have caused a headache for the ONS and damaged its reputation. That is not true of all its data, mind. The number of vacancies is gathered through a separate survey of employers rather than individuals, and questions haven’t been raised about this. We can take this as providing a reasonably reliable picture.

It recorded 781,000 between January and March 2025 – that number is a fall of 26,000 on the previous three-month period. The measure of vacancies is particularly significant this time round, as it is the first time that it has fallen below the pre-pandemic levels since the spring of 2021.

Now, the NICs increase takes effect this month – and so far, we have only seen the impact of employers preparing for it. In the coming months, we will see how they react to the reality of it. I can confidently predict that the results won’t be pretty.

The result is not surprising. How do you best respond to a tax on jobs as an employer? You freeze hiring. Redundancy programmes are expensive and come with the risk that you will find yourself needing to rehire the same workers if/when the economy improves. Much easier to reduce headcount and cut costs by attrition, if that is possible.

It is true that these figures are not solely down to Reeves’s tax hikes. America’s tariffs and the global economic uncertainty created by them, combined with the fact that UK plc has been moving like a sloth in pursuit of a branch on which to sleep, have all fed into the picture. But if you start taxing jobs more heavily on top of all that other stuff, you will inevitably make a bad situation worse.

Needless to say, the inability to find work when you need it is the heaviest tax one can possibly impose upon a working person. Reeves really ought to stop using the line that Labour has kept its promise to not raise taxes on working people. It is appallingly dishonest. That is before we consider the long-term freeze on tax thresholds, which will drag millions of people into higher tax bands.

A reminder: the rate employers pay NICs is increasing from 13.8 per cent to 15 per cent, while the secondary threshold – the point at which the levy kicks in – is coming down from £9,100 to £5,000. So the burden falls most heavily on employers with large, relatively low-waged workforces. Retailers would be an example.

Their staff will likely feel the impact through lower wages, and there is some evidence of that starting to come through. The average increase in total earnings, which includes bonuses, in the private sector fell to 5.6 per cent in the three months to the end of February, compared to the previous three-month period when it was 5.8 per cent. The public sector, by contrast, saw average pay rises jumping to 5.7 per cent from 5.2 per cent, as the generous recent round of wage settlements started to make their presence felt in the figures.

I concur with those analysts who expect to see that private sector figure fall further as a result of the tax and the tightening of the labour market. It isn’t just by freezing hires – or sacking people – that employers can reduce the impact of the NICs increase. This is another way working people will feel the impact of the tax. Employers are going to find it much easier to reduce wage settlements now workers are getting easier to find.

Another hit will be felt by people who already find it difficult to find work; older workers and those with health conditions and/or disabilities. These are just the sort of workers the government says it wants to “help” into work. It has stated that it wants to see the rate of employment at 80 per cent. The current figure is 75 per cent. However, employers showed a marked reluctance to hire these people when there were more vacancies than unemployed workers looking to fill them. Now that ratio has decisively flipped, with vacancies in long-term decline, it is only going to get harder.

Keir Starmer has banged on about the need to get people into work. But his government is making it harder to do that. It really does appear bent upon cutting off its nose to spite its face – its face and those of “working people”, who find themselves with a mountain to climb if they get laid off and have to find a new job.