Rachel Reeves has been dealt a fresh blow on the economy as company hiring plans fall to a “record low” following her national insurance contributions (NIC) hike.
The Chartered Institute of Personnel and Development (CIPD) said just 57 per cent of private sector employers plan to recruit staff in the next three months, down from 65 per cent last autumn, as they battle rising costs.
The influential monthly report by accountants KPMG and the Recruitment and Employment Federation (REC) also showed a “further steep decline” in permanent worker appointments last month, with recruiters blaming weak confidence in the economy and higher payroll costs.
Anna Leach, the chief economist at the Institute of Directors, warned the trend “could undermine the UK’s weak growth outlook further, hitting both living standards and tax revenues”.
The CIPD survey of 2000 employers found 84 per cent of UK businesses said their employment costs had risen since changes to NICs took effect in April 2025, while half of care and hospitality employers said those costs had risen to a large extent.
Ben Caswell, senior economist at leading think tank the National Institute of Economic and Social Research (NIESR), said the findings suggest firms are dealing with the NI hike by cutting staff rather than raising prices, but warned these were now being driven upwards by the chancellor’s minimum wage rise, which came in in April.
The news will come as a blow to Ms Reeves just days after the Bank of England warned the public of months of sharp price increases ahead, driven by higher food costs.
The central bank also blamed Ms Reeves’s NI raid and the rise in the minimum wage for helping to push up the cost of the supermarket shop, as it slashed interest rates to 4 per cent in a bid to boost the UK’s sluggish economy.
Ms Reeves has also been warned of a £50bn black hole in the government’s finances, which leading economists say means she may have to raise taxes, cut public spending, or tear up her fiscal rules in order to fill.
On Sunday, she urged the public to be patient with Labour on the economy, saying that the change they voted for in last summer’s election was “never going to happen overnight”.
James Cockett, senior labour market economist at the CIPD, said business confidence was “faltering further under rising employment costs” and warned the situation could get worse.
“Looking ahead, some measures in the Employment Rights Bill risk adding further to the cost of employing people. This is why it’s crucial that planned measures, such as the introduction of a new statutory probationary period and process for dismissing new staff, are carefully consulted on to ensure they can work in practice,” he said.
Jon Holt, group chief executive and UK senior partner at KPMG, said: “The labour market cooled in July as chief execs held back from increasing their recruitment budgets. Economic uncertainty, the complexities of AI adoption and global headwinds are all weighing on business planning.”
Last month, ex-Manchester United footballer Gary Neville, who was a vocal backer of Labour at the last general election and appeared in a video endorsing Sir Keir Starmer, hit out at Reeves for her national insurance hike, saying it has hampered employment.
Mr Neville, a businessman whose firms employ hundreds of people, said the chancellor had significantly increased the burden on businesses and that the national insurance increase was “a challenge”.
Daisy Cooper, the Lib Dem Treasury spokesperson, said the government’s jobs tax was “utterly misguided”.
“It’s dealt an absolute hammer blow to businesses across the country, especially to vitally important people-intensive sectors such as social care and hospitality, forcing many to cut costs and pause recruitment,” she said.
A HM Treasury spokesperson said 380,000 jobs had been created since the start of this parliament, while real wages rose more in the first ten months of Labour coming to power than over the first ten years of the previous government. They added business confidence was at its highest rate in ten years, according to a recent Lloyds Bank survey.
“Since the election, we have struck three major trade deals with the EU, US and India, business rates are being reformed, and corporation tax is capped at 25 per cent. This is how we are delivering on our Plan for Change to kickstart economic growth and put more money into working people’s pockets,” they said.
