Firms shed more jobs as tax rises start to hurt

Employment levels in the UK deteriorated considerably by the end of the first quarter, official data has suggested, in signs that Chancellor Rachel Reeves £20 billion tax raid on employers has squeezed firms’ profits. Figures released by the Office for National Statistics (ONS) revealed that the number of pay-rolled employees fell by 53,000 over the first three months of 2025.

The early estimate of payrolled employees for April showed a decrease by 33,000. Signs that inflation may remain sticky in the months ahead were also represented by high levels of annual pay growth, which reached 5.6 per cent in the three months to March.

It could increase challenges for interest rate-setters at the Bank of England though wage growth in the three months to March was slightly lower than the 5.7 per cent figures pencilled in by Bloomberg, which polled several economists in the lead-up to the release. It also came in below recent figures showing wage growth was 5.9 per cent in the three months to February. Total pay growth, which includes bonuses, was 5.5 per cent between January and March while unemployment edged up to 4.5 per cent.

“Wage growth slowed slightly in the latest period but remains relatively strong, with public and private sectors now showing little difference,” Liz McKeown, director of economic statistics at the ONS said.

“The broader picture continues to be of the labour market cooling, with the number of payroll falling in the first quarter of the year. The number of job vacancies has also fallen again, with the rate of decline increasing in the last few months.” Institute of Directors policy advisor Alex Hall-Chen said the figures showed the government needed to take “urgent action” on improving employment levels.

“The business case for hiring has been weakened by a perfect storm of (April’s) increased employer national insurance contributions (NIC’s) and above-inflation increases to the minimum wage, alongside a wave of measures in the Employment Rights Bill which will make hiring riskier and costlier,” Hall-Chen said.

A poll of 31 major retailers has found the Employment Rights Bill, currently still going through parliament, will lead to early job cuts and price rises, in the latest sign the government’s legislative agenda risks harming economic growth. The bill introduces sweeping changes to zero-hours contracts, sick pay, leave, flexible working and dismissal, and is set to pile extra costs on employers.

The retail sector is already facing significant pressures from high taxes in addition to NIC’s which is stifling employment and undermining investment. The British Retail Consortium has now found that major retailers are increasingly concerned about the hits they will suffer from the government’s Deputy Leader Angela Rayner’s workers’ rights reforms.

Seven in 10 HR directors at big retailers believe that the workers’ rights reforms will have a negative impact on their businesses, according to BRC’s survey, highlighting the widespread pessimism about the damage the bill could do in its current form. More than half of respondents also said that the Employment Rights Bill would lead to a reduction in staff members while 61 per cent said it would “reduce flexibility” in job offerings.

The 31 retailers surveyed employ some 500,000 people, the BRC said. Among the proposed changes to employment rights are outlawing ‘exploitative’ zero-hours contracts and providing guaranteed hours. The BRC said they would limit the number of part-time job offerings which comprise half the sector’s workforce.

The BRC’s chief executive, Helen Dickenson, warned that the changes to the employment rights risked “putting retail job numbers further into reverse.”

She added: “Those in charge of retail hiring are clear: unless amended, the bill will make it even harder to keep and create jobs and reduce the flexibility that defines many existing retail roles.”

The BRC also warned consumers face paying more for items at high street shops as most HR directors said the cost of the bill would have a knock-on effect on the price of goods.