Employers have delivered a scathing verdict on how Rachel Reeves’ tax raid and Angela Rayner’s red tape have put jobs and investment at risk. Vacancies are falling, unemployment is rising and business confidence in the jobs market is low, the CBI warns.
The Chancellor’s shock increase in employers’ National Insurance contributions and the hikes in the National Living Wage come with an annual cost of more than £24billion, the business organisation warns.
The overwhelming majority of respondents (86%) to its latest jobs survey said the UK labour market is a less attractive place in which to invest and do business than five years ago – with 54% ranking it “much less attractive”.
Seven in 10 businesses (69%) named the recent National Insurance rise as one of the top three cost threats to UK labour market competitiveness. This was followed by the cost of implementing measures in the Employment Rights Bill (53%) pushed forward by Ms Rayner before her resignation as Deputy Prime Minister.
Nearly eight in 10 companies (78%) said the Bill would hit growth, investment, jobs and/or discretionary employee benefits.
The CBI warns there is “no doubt” the increases in NICs and the National Living Wage have “made it harder for firms to hire, invest and grow”.
More than eight in 10 respondents (86%) said that threat of being taken to a tribunal for dismissing someone during their probation period will make them more cautious about hiring.
Around two thirds (65%) said the impact of employment regulation on flexibility was a threat to competitiveness (65%).
Matthew Percival of the CBI said: “Labour costs, regulation, and skills investment are critical areas where action is needed to safeguard the UK’s labour market resilience and attractiveness over the next five years and beyond.”
John Longworth, who chairs the Independent Business Network, raised concerns about the impact on smaller companies, saying: “Labour’s employment legislation spells disaster for family businesses already hit by inheritance tax and other taxes. While large corporations will be hit, they at least have large departments to deal with the unions.”
He warned the new measures will be a “disaster for jobs” and “businesses will close”.
Robert Colvile, director of the Centre for Policy Studies, said: “The CBI are absolutely right to warn that rising costs and new regulations will damage growth and jobs. Making it more expensive to employ people always means fewer opportunities, especially for those on the lowest incomes.
“As we warned in our recent analysis, this year it will cost businesses over £2,300 more to employ a full-time minimum wage worker than in 2024 -–a 60% jump in the employer NIC burden, and the highest tax burden on labour on record. This Government cannot keep taxing work more heavily and expect growth to follow.”
Carmen Watson of Pertemps, an employment agency which collaborated with the CBI on the survey, said there was an “urgent need for policies that restore business confidence and support sustainable job creation”.
Shadow Chancellor, Sir Mel Stride said: “This report is yet another wake-up call. Labour’s Employment Rights Bill is not a blueprint for fairness – it’s a threat to jobs, growth and Britain’s competitiveness. At a time when we should be backing business to hire and invest, Labour is pushing up costs and piling on regulation.
“This is what happens when you have a government which doesn’t understand business. No one on Labour’s front bench has any real-world business start-up experience.
“Like many of my Conservative colleagues, I started a business from scratch. I know how hard it can be. Rachel Reeves and her colleagues don’t – and it perhaps explains why she’s recklessly decided to make life much harder for businesses.”
A Government spokesperson said: This pro-worker and pro-business Government is delivering the biggest single upgrade of workers’ rights in a generation through our plan for change – because we know a more secure workforce is good for productivity and growth. We have worked with over 230 stakeholders, listening carefully to feedback from businesses and trade unions to ensure that the legislation works for workers and employers alike and will continue to do so as the Bill progresses through Parliament.”