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The job market gloom that signals a looming recession
Nick Coburn was until recently planning to hire more staff. But after companies like his were hit by a £25bn tax raid in the Budget, he is now racing to find ways to avoid redundancies.
“We had planned to increase our staff by around 30 to 35 people, but we’ve completely culled that idea simply because of the hit from National Insurance,” he laments. “It’s costing us over £2m.”
Coburn is the managing director of Ulster Carpets Group, a Northern Irish company that turns over £100m a year and makes carpets for five-star hotels and cruise ships. He describes the Budget as a “seismic shock” akin to the great recession.
“I’ve been in the business 47 years. This would take us back to the financial crisis of 2008,” Coburn says. “There are similarities – it was something that happened overnight. Like many other businesses up and down the land, we have very tough decisions to make.”
This crisis is playing out in boardrooms and offices across the country, as business owners brace themselves for a sharp rise in National Insurance contributions and another inflation-busting minimum wage increase from April.
The looming surge in costs comes at a difficult time. The economy has not grown in months and remains smaller than in June, before Labour took power. Hiring was already suffering its longest ever slump before the Budget, which only worsened problems.
“The employment market is behaving as if it’s in a recession,” says Michael Stull, of recruiter Manpower. “We’re seeing a significant drop in job postings. If you look year on year, we’re down about 30-some per cent.
“Workers are also not moving. In times of recession, people will usually sit tight. You see in manpower studies that a quarter of the workers are thinking they’re going to lose their job in the next six months and won’t be able to fill another job. Those are typically what we would see in a recession .”
Such findings are fuelling concerns that this “hiring recession” is turning into an economy-wide recession . Many indicators of the economy’s health – such as surveys of businesses and corporate results – are certainly flashing red.
Recruitment firm Robert Walters reported a 45pc drop in fee income from hiring outside London in the final three months of 2024. Its chief executive blamed Rachel Reeves’s maiden Budget, saying there was “no denying” that the tax rise for employers had created a cost that needed “to be absorbed”.
Meanwhile, a new survey by the Institute of Chartered Accountants in England and Wales (ICAEW) reports that business confidence is now falling at the fastest pace in two years.
Separate polling of business owners by the British Chambers of Commerce shows three quarters of companies feel pressure to raise prices because of high wage bills.
Jane Gratton from the BCC described the figures as “just the tip of the iceberg”, warning the full impact on hiring would only “become apparent later this year”.
From April, employers face a rise in National Insurance contributions from 13.8pc to 15pc.
Meanwhile, the minimum wage will rise by 6.7pc to £12.21 an hour. It will mean the minimum wage has increased by 37pc in only four years, well ahead of inflation.
Many large employers have warned that they are being forced to put hiring on hold or even make lay-offs as a result of the surge in costs. Britain’s biggest retailers have warned of “inevitable” job losses.
“When I worked out the impact on us from a profit point of view, I thought I’d got the decimal point in the wrong place,” says Mike Burks, the managing director of The Gardens Group, which employs 160 people in Somerset and Dorset.
“It’s such a dramatic increase in costs, which would serve to wipe out two-thirds of our profit.”
He is hoping to avoid redundancies but says his business will no longer take on seasonal workers as a result of the tax shock.
“It’s an impact on a scale that just isn’t easy to comprehend. And I think it’s bound to dampen growth in the whole economy,” he says.
The increasing gloom among employers highlights a sudden reversal in fortunes for the country. The economy had been growing at the fastest pace in the G7 at the start of the year.
“The extraordinary thing is everything was going great,” says Steven Bell, the chief economist at Columbia Threadneedle Investments.
Bell blames the sudden downturn on a combination of the “truly stupendous increase in taxation”, Reeves’s policy missteps in “an unfriendly world” and a rise in energy bills that has left households wary of spending.
He believes a “mild recession” is now likely and warns that a deeper downturn is not off the cards.
“I think the labour market is going to weaken, unemployment will rise and employment will at a very minimum slow. I think [companies will] hire fewer [people]. They’ll fire more, and some labour-intensive businesses will simply go out of business,” Bell says.
Recent bond ructions
Worryingly, things may get worse as recent ructions in the bond market put the Chancellor at risk of breaking her fiscal rules. Sir Keir Starmer, the Prime Minister, has promised “ruthless” spending cuts to bring public finances back into balance but there are growing concerns that more tax increases will be required too.
“I don’t think you’ll find any economist who says there won’t be tax increases,” says Bell.
While this may help Reeves meet her fiscal goals, more tax increases would risk deepening any downturn – and could in fact prove counterproductive if it fuels a slump so big it offsets any tax gains.
If things continue to deteriorate, the Government and the Bank of England may find themselves with their backs against the wall.
Bell says: “They don’t have a lot of ammunition that they can throw if it goes wrong – a big tax cut, a big spending increase, a big interest rate cut – that would be difficult.”
In Northern Ireland, Coburn lacks room for manoeuvre too. He had hoped to pass on the costs from the Budget by raising prices. However, this looks increasingly unviable because of the “difficult” business environment and stiff competition from China.
“We haven’t made that decision, but we think it is a likely event of lay-offs,” he says wearily. “We’ve got three plants. We may have to consolidate production down to two. It’s possible we may have to reduce [staff numbers] by 30.”
As the Chancellor talks of going “further and faster” to boost growth, those on the frontlines of corporate Britain are simply scrambling to stay alive.
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