Labour’s employment legislation and national insurance blamed for rising joblessness
National insurance hikes and the employment rights act mean businesses are being forced to cut back on hiring, business leaders and analysts have said.
The labour market continued to loosen at the end of last year, according to new Office for National Statistics (ONS) data, with unemployment climbing to 5.2 per cent between October and December – the highest level since early 2021.
The employment rights act, which passed into law in December and is being rolled out in phases, could further deter firms from hiring, analysts said.
Rising wages have been blamed by some for rising joblessness, as minimum pay for 21 to 22-year-olds has risen by 33 per cent over the past three years, bringing it into line with the £12.71 hourly national living wage paid to older workers.
The rate for 18 to 20-year-olds has increased by 46 per cent to £10 an hour and is set to rise again to £10.85 in April.
Labour costs driving hiring cut-back
Helen Dickinson, Chief Executive at the BRC, told City AM the Labour government “must think carefully about the implementation of the Employment Rights Act”.
“Now is clearly not the time to introduce measures that would reduce the availability of flexible and part-time jobs – those which are essential to giving people a first step in their career, and supporting others to return to work,” she said.
The price of labour is named the biggest cost pressure by 72 per cent of businesses, according to research by the British Chambers of Commerce (BCC).
Patrick Miles, head of people and work policy at the BCC, said inflated wages, along with higher national insurance and business rates contributions, make it “unsurprising [businesses] are holding off hiring”.
“The imminent introduction of new employment rights legislation adds additional complexity to the picture,” he said.
The act will tighten rules around zero-hour contracts and effectively ban ‘fire and rehire’.
More than a third (37 per cent) of firms surveyed by the Chartered Institute of Personnel and Development (CIPD) said these reforms will force them to curb hiring.
Matthew Fell, director of competitiveness at BusinessLDN said young Londoners are bearing the brunt of the UK’s rising joblessness.
Young workers struggle to find entry roles
Youth unemployment has jumped to an 11-year high, with 16 per cent of 16 to 24 year-old jobseekers currently without work.
Fell said: “The Government should keep a close eye on how last year’s hike to employer national insurance contributions and minimum wage increase is impacting those at the start of their careers and do what it can to help bring down operating costs.”
Andrew Wishart, senior UK economist at Berenberg said “aggressive” increases in the minimum wage have meant lower paid roles, rather than graduate posts, are receding quickest.
Suren Thiru, economics director at the Institute of Chartered Accountants (ICAEW), said: “The UK’s jobs market is continuing to come apart at the seams as the stifling squeeze from spiralling labour costs pushes more businesses to pivot from simply freezing recruitment to actively cutting jobs.”
The department for work and pensions was contacted for comment.