Rachel Reeves Tax Policies Linked to Job Losses and UK Employment Slowdown

Leading voices at the Bank of England have issued a direct challenge to Chancellor Rachel Reeves’s claims regarding recent tax and minimum wage policy impacts on the employment market. Catherine Mann, a member of the Monetary Policy Committee, has told MPs that Reeves’s £26 billion National Insurance rises together with a higher minimum wage have created added costs for employers, resulting in reduced hiring and a shrinking jobs market. Mann cited Bank of England surveys finding roughly half of businesses cutting staff or reducing headcount to manage intensified expenses imposed by the government.

Tension has emerged between official data and the government’s narrative. Rachel Reeves continues to insist that employment has grown by over 300,000 jobs this year, highlighting initiatives such as the youth guarantee and programmes targeting widespread youth unemployment inherited from the previous administration. Yet the Bank’s analysis points to a contrasting reality in which major cost pressures are disproportionately affecting certain sectors, especially those reliant on lower-paid roles.

The Chancellor’s latest Budget confirmed a 50 pence rise in the national living wage to £12.71 per hour from April, marking a cumulative increase of 43 percent since 2021. This rapid elevation, combined with the increased burden of employer National Insurance, has left the United Kingdom with one of the world’s highest statutory minimum wage rates. Recruitment data from the platform Indeed shows that hiring for low-paid roles in the UK has fallen by 20 percent compared to pre-pandemic levels. By contrast, major European economies such as Italy, France, and Germany have experienced increases in low-wage recruitment.

Ric Traynor, executive chairman of insolvency specialists Begbies Traynor, has warned of a coming surge in business bankruptcies, particularly within the hospitality and retail sectors. The costs imposed by the higher minimum wage and the government’s employment legislation, including expanded workers’ rights and restrictions on zero-hours contracts, are named as principal pressures threatening the viability of numerous businesses.

Alongside the policy changes in taxation and wage law, the UK’s unemployment rate has climbed from 4.3 percent to 5 percent since Labour assumed office in July 2024, with forecasts indicating that the trend may worsen into 2026. Business leaders and members of the Treasury select committee have both emphasised the material effect on the labour market, warning of stalling growth and sustained downward pressures on job creation for lower-income workers.

While government representatives point to their successes in job creation and youth employment, independent data and employer feedback continue to flag the risk that higher employment costs are accelerating a shift away from lower-paid roles and constraining economic growth, with business insolvencies expected to increase in the coming year as a direct consequence.