British businesses cut jobs last month at a rate not seen outside the pandemic since 2009, as many companies looked to head off the impact of higher employment taxes and the rise in the National Living Wage due in April.
New flash data from S&P Global’s UK purchasing managers’ index (PMI) revealed that private sector employment fell sharply in February, with nearly one in three businesses reporting lower staffing levels. Those respondents directly linked the cuts to policies announced in last October’s Budget, when Chancellor Rachel Reeves introduced a £25 billion National Insurance hike and confirmed that the legal minimum wage would climb for many age brackets from April.
Chris Williamson, chief business economist at S&P Global, said: “Employment fell sharply again in February, dropping at a rate not seen since the global financial crisis if pandemic months are excluded. One in three companies reporting lower staffing levels directly linked the reduction to policies announced in last October’s Budget.”
While the PMI data also indicates that overall private sector growth softened slightly in February, wage pressures continue to drive up average cost burdens. According to S&P Global, operating costs grew at the fastest pace in 21 months, compounding the labour cost concerns of companies already bracing for higher tax bills and statutory pay obligations.
The resulting job cuts underline the challenges facing businesses in multiple sectors as they navigate both global headwinds and domestic fiscal changes. Many employers appear to be proactively adjusting headcount ahead of the higher wage floor and the sizeable National Insurance hike.
The news comes at a delicate time for Chancellor Reeves, who has been wrestling with higher-than-expected levels of public borrowing since the fiscal year began. Treasury data from the Office for National Statistics (ONS) shows public sector borrowing hitting £118.2 billion in the 10 months to January, overshooting the Office for Budget Responsibility (OBR)’s October forecast by £12.8 billion.
With government debt building, some economists predict the Chancellor will be forced into further tax increases or spending cuts in her next Budget. Alex Kerr of Capital Economics said that “in order to meet her fiscal rules, the Chancellor will need to raise taxes and/or cut spending in the fiscal update on March 26.”
Elliott Jordan-Doak of Pantheon Macroeconomics described the pressure on the public finances as “seemingly relentless,” noting that analysts’ estimates had undershot the Treasury’s borrowing tally by £5.1 billion in January alone—the biggest miss so far this fiscal year. He suggested “it will only get worse from here,” citing fresh revisions to earlier borrowing data.
With the OBR scheduled to produce updated fiscal forecasts next month, many insiders believe that both new revenue-raising measures and more stringent public spending discipline will follow. A potential combination of further tax hikes, alongside a clampdown on departmental budgets, is increasingly on the cards for the Autumn Budget.
The spectre of higher employment taxes and wage costs underscores the challenges facing businesses across Britain, from large retailers down to SMEs. Uncertainty over consumer demand—amid stubborn inflation—and ongoing global supply chain disruptions add further layers of complexity.
For employees, the blow of job cuts coincides with rising household bills and living costs. The pace of wage growth may offer some relief, but it remains to be seen whether the upward pressure on operating costs will moderate or if more firms will decide to follow suit by trimming payroll.
As Chancellor Reeves wrestles with the need to shore up the government’s finances while delivering on policy promises, the tension between raising the labour market floor and maintaining robust employment levels is set to remain a key concern for businesses—and for the British economy as a whole.
