British businesses are shedding jobs at the fastest rate in four years following Chancellor Rachel Reeves’s £25 billion payroll tax increase, according to new figures from the Bank of England.
The central bank’s latest Decision Makers’ Panel survey, which questioned around 2,000 chief financial officers, reported a 0.5% fall in employment over the three months to August — the steepest decline since 2021. The poll also found that firms plan to reduce staff over the coming year at the quickest pace since October 2020, when the UK was emerging from pandemic restrictions.
HM Revenue & Customs data paints a similar picture, showing that more than 160,000 jobs have been lost since last October’s budget, when Reeves announced a significant rise in employer National Insurance contributions. The losses have been concentrated in retail and hospitality, two of the country’s largest and most labour-intensive sectors.
Industry groups have sounded the alarm. UKHospitality described the scale of redundancies as “staggering”, while the British Retail Consortium warned that further tax rises could force more closures and threaten jobs. More than half of all positions lost since the budget have been in low-wage industries, underlining the pressure on consumer-facing businesses already grappling with rising costs.
The British Chambers of Commerce has also raised concerns, cautioning that firms are preparing to freeze recruitment as higher payroll expenses squeeze margins. Retailers reported in July that sales growth was failing to offset the £7 billion in additional costs imposed by the budget, intensifying calls for the government to avoid further tax hikes in November’s fiscal statement.
Former Bank of England governor Lord King of Lothbury said Reeves’s options were limited by Labour’s election pledge not to raise income tax, VAT or employee National Insurance contributions. “By ruling out those rises, the government boxed themselves in,” he told Times Radio. “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 increasingly relied on its own surveys amid falling response rates to official labour market data. Its latest findings also showed inflation expectations climbing to 3.4% for next year, up from 3.2% in July and well above the Bank’s 2% target. Official figures put inflation at 3.8% in July, with forecasts suggesting it could peak at 4% in September — the rate that will be used to uprate pensions and benefits in April.
Despite mounting concerns over jobs and inflation, markets expect the Bank to hold interest rates at 4% through year-end, following five cuts over the past 12 months. Meanwhile, long-term government borrowing costs touched their highest level in nearly three decades this week before easing slightly.
Defending its record, the Treasury said the government remained “pro-business,” pointing to strong services activity, job creation, trade deals with the US, EU and India, and business rate reforms. A spokesperson added: “We are a pro-business government that has created 380,000 jobs, helped interest rates fall five times, and capped corporation tax at 25%.”
