Unemployment on the up as emergency budget looms - Conservatives

UK Labour Market March 2025

Unemployment has increased again under the Labour Government as the impact of their tax-raising budget are felt across the economy.

Data released by the Office for National Statistics shows that unemployment in November 2024 to January 2025 was 4.4 per cent, up by 0.1 percentage points on the quarter.

It remains above the 4.2 per cent unemployment rate that Labour inherited last summer.

With an emergency budget less than a week away, this data will be more unwelcome news for the Chancellor.

Earlier this month, the OECD revised down growth expectations for the United Kingdom over the next two years while inflation jumped to 3.0 per cent in just one month.

These economic challenges facing businesses are further compounded by Labour's choices.

In February, the Bank of England revised their economic forecasts, with wage growth expected to slow and unemployment to rise further as a result of Labour's Autumn Budget. 

The Office for Budget Responsibility predicted the National Insurance increase will cost the economy 50,000 jobs.

Meanwhile businesses have warned Labour about the consequences of their Employment Rights Bill on jobs. Businesses are cutting jobs at the fastest rate since the financial crisis while the Confederation of British Industry said the regulations will ‘prevent [businesses] from creating the high-quality, secure jobs'.

Helen Whately MP, Shadow Work and Pensions Secretary, said:

“I am disappointed that unemployment has gone up again.

“This is the inevitable outcome of Labour's jobs tax and mission to smother businesses with red tape.

“With growth down, borrowing up and business confidence in free fall Rachel Reeves must take urgent action in her emergency budget in 6 days' time.”

ENDS

Notes to editors

Today's labour market data shows unemployment continues to rise under Labour…

• The UK unemployment rate is 4.4 per cent. In November-January 2025, unemployment for over 16s was 4.4 per cent. This is 0.1 percentage points higher than the previous quarter and 0.2 points higher than the 4.2 per cent unemployment rate left by the Conservatives in April-June 2024 (ONS,Labour Market Overview, 20 March 2025, link).

• There were 124,000 redundancies – up by 25,000 on the quarter. In November-January 2025, 124,000 people aged 16 and over were made redundant, up by 25,000 on the quarter (ONS, Labour Market Overview, 20 March 2025, link).

• Employment in the public sector increased by 0.3 per cent on the quarter. Employment in the public sector in December 2024 increased by 19,000, or 0.3 per cent, compared with September 2024. This is an increase of 53,000, or 0.9 per cent, on the year since December 2023 (ONS,Labour Market Overview, 20 March 2025, link).

Under Labour, unemployment is forecast to be higher and wages growth slow down

• The Bank of England has downgraded wage growth and unemployment. In February 2025, the Bank of England slashed its economic forecasts, with wages growth predicted to be lower and unemployment to be higher (Bank of England, Monetary Policy Report, 6 February 2025, link).

• The Bank of England said that Labour's NICs rise will result in lower wages and employment. ‘The increase in employer National Insurance contributions (NICs) was the largest change to taxation in the Autumn Budget. The Committee has reviewed the latest analysis of the impact of this change, and has not made material changes to the assumptions in the forecast on the ways in which the NICs increase is likely to be transmitted into higher prices, lower wages and employment… There is a risk that a greater part of the adjustment to the increase in employer NICs comes through lower employment' (BoE, Monetary Policy Report, February 2025, link).

• The OECD has revised down growth expectations for the United Kingdom for the next two years. The OECD's Economic Outlook, Interim Report March 2025, revised down growth expectations for the United Kingdom for 2025 by 0.3 per cent and for 2026 by 0.1 per cent (OECD,Economic Outlook: Interim Report, March 2025, link).

• The Office for Budget Responsibility said the increase to National Insurance will cost 50,000 jobs. ‘The increase in employer NICs, which we estimate will reduce the level of potential output by 0.1 per cent at the forecast horizon… We assume this lowers real wages and profits, and workers and firms reduce labour supply and demand in response, reducing labour supply by around 50,000 average-hours equivalents' (OBR, Economic and Fiscal Outlook, 30 October 2024, link). 

• When the Conservatives left office, real wages had been increasing for 13 months in a row. Labour inherited strong real wage growth, with annual growth in total earnings (including and excluding bonuses) in Great Britain at 5.4 per cent in April to June 2024 – outpacing inflation at 2.0 per cent and boosting wages in real terms (ONS, Labour Market Overview, 13 August 2024, link).

Businesses are cutting jobs because of the Labour Government's policies…

• Businesses are cutting jobs at the fastest rate since the financial crisis. S&P Global's UK Composite PMI said: ‘Aside from the pandemic, the pace of job shedding was the steepest since the global financial crisis more than 15 years ago. Lower workforce numbers reflected subdued demand conditions and ongoing efforts to mitigate higher payroll costs. Overall input price inflation hit an 18-month high in January' (S&P Global, UK Services PMI, 5 February 2025, link).

• Manufacturing jobs have fallen for five of the past six months. The S&P Global UK Manufacturing PMI said: ‘Staffing levels have now fallen in five out of the past six months. The latest round of job losses reflected weak demand, cost control initiatives and restructuring in response to changes in both the minimum wage and employer national insurance contributions (NICs). Companies responded by laying off temporary staff, reducing the hours of some employees, redundancies and the non-replacement of leavers and retirees' (S&P Global, UK Manufacturing PMI, 3 March 2025, link).

• A quarter of service sector businesses are cutting jobs. The S&P Global UK Services PMI said ‘A combination of lacklustre demand and rising payroll costs led to cautious recruitment strategies in February. Around 24 per cent of the survey panel indicated a reduction in total employment numbers, while only 13 per cent signalled a rise. The resulting seasonally adjusted index pointed to the fastest pace of job shedding since November 2020' (S&P Global, UK Services PMI, 5 March 2025, link).

• UK Hospitality has said that because of the budget, 70 per cent businesses in the hospitality industry will cut jobs. Analysis by UK Hospitality of hospitality businesses found that because of the increase in employment costs at the budget, 70 per cent will reduce employment levels, 60 per cent will cancel planned investment, 29 per cent will reduce trading hours and 15 per cent believe they will have to close (UK Hospitality, Press Release, 24 February 2025, link).

• The Retail Jobs Alliance (RJA) has warned that due to tax rises 300,000 jobs in the retail sector could be lost by 2028. The RJA, which represents businesses including M&S, Sainsburys, Tesco, Asda, Primark and Morrisons, has warned that 300,000 jobs could be lost in the retail sector by 2028 as the industry faces increases in tax following the budget and red tape (The Daily Telegraph, 11 February 2025, link).

Labour's Unemployment Bill will reduce the number of people taken on

• The Confederation of British Industry (CBI) said the Employment Rights Bill will have ‘damaging consequences' for jobs. Rain Newton-Smith, CEO of the CBI said: ‘It is the unintended consequences of how these policies will be pursued, not the ideas themselves, which will have damaging consequences for growth, jobs and investment. There is a real risk that this legislation imposes a thicket of regulation across all businesses which prevents them from creating the high-quality, secure jobs which we all want to achieve' (Confederation of British Industry, Press Release, 4 March 2025, link).

• The Federation of Small Business (FSB) has said that 67 per cent of small businesses are going to cut jobs because of the Employment Rights Bill. The FSB has said that 67 per cent of small employers will cut jobs because of the Employment Rights Bill with a third planning to reduce the number of employees. The survey also said that just 10 per cent of small employers are planning to take on more staff with 33 per cent planning to reduce staff numbers (FSB, Press Release, 20 February 2025, archived).

• The Government's own impact assessment states that by increasing the cost of employment, The Employment Rights Bill will mean one in six businesses will sack workers and one in eleven will cut wages. ‘Across all businesses in the UK with 10 or more employees… responses included to reduce the number of employees (17 per cent), limit overtime hours (10 per cent) or reduce wages for other employees (9 per cent)' (DBT,Employment Rights Bill: Economic Analysis, October 2024, link).