Hiring slump deepens as bosses brace for Reeves tax raid

Businesses are cancelling hiring plans and preparing to lay off workers as they brace for the impact of Rachel Reeves’s £40bn tax raid next month.

Ahead of planned rises in the minimum wage and employer National Insurance (NI), new data shows the jobs market is shrinking as companies scale back investment.

According to the report for KPMG and the Recruitment and Employment Confederation, starting salaries are also rising at the slowest pace for four years.

It found that demand for staff suffered “substantial declines” in February, with demand for permanent roles falling for the 18th month in a row.

This led to declining vacancies in almost all sectors.

“Recruiters frequently cited that weaker confidence around the economic outlook and rising payroll costs had led firms to pause or cut back on hiring,” the report said.

At the same time, a separate survey of small and medium-sized businesses found that around one fifth – or approximately 300,000 – are planning to “reduce headcount” to help cope with the NI rise.

Two thirds of those surveyed estimated the increase would cost them more than £10,000, with more than half planning to deal with this by raising prices, the research for loan provider Iwoca found.

Firms are also planning to trim hiring and cancel pay rises.

Seema Desai, of Iwoca, said: “Based on our survey, rising employer NI contributions are likely to result in slower wage growth and job losses among small and medium-sized businesses.”

It comes after leading businesses warned that the rise in employer NI contributions, which will go from 13.8pc of pay to 15pc, is a “tax on jobs”.

In her October Budget, Ms Reeves, the Chancellor, also announced an increase to the National Living Wage and changes that will see minimum pay for 18 to 20-year-olds equalised with all other adults over time.

Neil Carberry, the REC’s chief executive, said: “Enabling companies to grow is at the heart of our prosperity. The Chancellor must use the spring statement to build their confidence in growth.

“At the moment, though, things are still slow as companies hold their breath in the face of significant cost rises from April with changes to National Insurance and the National Living Wage.

“Getting the Industrial Strategy flying is a key part of this, for the whole economy, not just key sectors – as is addressing policies in the Employment Rights Bill so they do not prove to be a brake on growth.”

The Treasury was contacted for comment.

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