Blair think tank turns fire on Labour over wage hikes and tax squeeze
Tony Blair’s think tank has published a critique of Labour’s economic strategy, warning that higher minimum wages, rising employers’ National Insurance and tougher workers’ rights risk choking off growth and pricing young people out of jobs.
In a striking intervention from the former Labour prime minister’s own policy institute, the report deems the government’s labour market reforms are landing at the worst possible moment, as unemployment rises and businesses grapple with mounting costs ahead of Rachel Reeves’ Spring Forecast.
Youth unemployment has climbed to 16.1 per cent, above pandemic levels and the highest in more than a decade.
It warns that plans to lift the youth minimum wage for under-21s to match the adult rate could discourage firms from hiring inexperienced workers.
“The risk is that further rises… will discourage firms from taking a chance on new employees, particularly younger workers,” the report states.
“Set too high, a wage floor can erode the first rung on the career ladder.”
Rather than allowing annual increases to become automatic, the institute urges ministers to give the low-pay commission flexibility to “slow, pause or reverse” rises when economic conditions deteriorate or when businesses face rising tax and regulatory burdens.
Growth mission at risk
The critique extends beyond wages, with the report arguing that Labour’s Employment Rights overhaul – tightening rules on hours, dismissal and compliance – will reduce firms’ ability to adapt at a time when agility is crucial, particularly as AI reshapes industries.
“High and inflexible dismissal costs are now a material barrier to experimentation and scale in the UK’s fastest-growing sectors,” it wrote, adding that this is one reason Britain continues to lag the US in attracting and scaling dynamic firms.
Tom Smith, the institute’s director of economic policy, said: “Reigniting growth is the defining challenge facing the UK. Too often, growth is treated as one objective among many, rather than the engine of rising living standards and national renewal.”
Elsewhere, the report calls for a broader “reset in favour of dynamism”, including labour market, regulatory and financial reforms that make it easier for businesses to hire and invest.
The warning also lands amid wider concerns about economic direction.
The Resolution Foundation has calculated that the government has made £8.2bn worth of policy U-turns since taking office, adding to rising uncertainty at a time when business confidence remains fragile.
A government spokesperson said ministers were delivering a “stronger, more secure economy”, pointing to interest rate cuts, trade agreements and planning reforms as evidence that the UK would be among the fastest-growing G7 economies in Europe over the next two years.
But with youth worklessness rising and firms warning of squeezed margins, the report adds renewed pressure on Reeves to show that Labour’s growth mission can coexist with its labour market reforms, rather than be undermined by them.