Redundancies are rising at their fastest pace in four years, with new figures suggesting that the sharp increase in employment taxes announced in the October 2024 budget is beginning to bite.
Employment across the UK fell by 0.5 percent in the three months to August, according to the Bank of England’s latest Decision Maker Panel survey, based on responses from 2,000 chief financial officers. The data also show that planned job cuts over the next 12 months have reached their highest level since the pandemic-era disruption of late 2020.
Retail and hospitality have been hit particularly hard, with payroll employment falling by more than 160,000 since Chancellor Rachel Reeves unveiled a £25 billion national insurance rise for employers last year. The policy formed part of Labour’s pledge not to increase income tax, employee National Insurance or VAT – a decision economists say has left the government with few fiscal alternatives beyond taxing businesses.
Hospitality and retail bear the brunt
While tax rises have affected all sectors, the impact has been most severe in lower-wage industries, according to official data from HM Revenue & Customs. The British Retail Consortium said last month that sales growth in July was “barely touching the sides of covering the £7 billion new costs imposed on retailers at the last budget”, while industry body UKHospitality called the scale of job losses “staggering”.
Many firms in these sectors operate on tight margins and are particularly exposed to labour costs. The latest survey figures suggest these pressures are forcing employers to pause hiring or make redundancies, a trend HR professionals have warned could intensify in the months ahead.
The British Chambers of Commerce has also raised concerns, saying employers are considering hiring freezes and headcount reductions due to increased employment costs. In particular, the rise in employer National Insurance contributions has been criticised for disincentivising job creation, especially among smaller firms that may lack the financial buffer to absorb higher tax liabilities.
Labour market contraction raises wider concerns
The drop in employment comes despite signs of broader economic resilience. Inflation remains above the Bank of England’s 2 percent target and rose to 3.8 percent in July. It is expected to peak at 4 percent this month, a figure that will be used to set benefit and pension rises next April.
With interest rates currently at 4 percent following five cuts over the past year, the Bank has indicated it is likely to hold rates steady for the rest of 2025. But long-term borrowing costs have risen sharply, with government bond yields reaching their highest point in nearly three decades before easing slightly last week.
Amid this volatility, HR teams are facing pressure to respond not only to growing redundancy risks but also to potential impacts on workforce morale, engagement and retention. The cost-cutting may also lead to reduced investment in skills and training, further complicating long-term talent strategies.
Calls for a rethink on business taxation
Economists and business groups have criticised the chancellor’s approach, arguing that protecting household taxes at the expense of business stability could harm both employment and investment.
Speaking to Times Radio, former Bank of England governor Lord Mervyn King said the government had boxed itself in by committing not to raise personal taxes. “You can’t predict in advance what you will need to do and to make that kind of commitment really meant that their only freedom was to cut spending. And of course, when they tried to do it, then their own MPs rebelled against it. So I think they have a serious challenge ahead,” he said.
As the 26 November budget approaches, pressure is mounting on Reeves to either reverse or soften the impact of the payroll tax hike. Several business lobby groups are calling for targeted relief measures for small firms or those operating in high-labour sectors.
HR teams urged to prepare for further disruption
While many of the job losses have so far been in frontline roles, the broader implications for organisational structure, planning and employee support are still playing out.
Workforce advisers say that if current trends continue, HR teams may need to prepare for further redundancies, redeployment strategies and morale-boosting initiatives to support those remaining. They also point to the growing need for transparent internal communication about organisational challenges and the rationale behind cost-cutting decisions.
Although some employers may look to automation and other efficiencies to reduce headcount costs, such changes can take time to implement and may not suit all sectors. In the near term, experts say more job losses are likely unless the government reconsiders its approach or introduces offsetting measures.
Budget response will be key
The next fiscal statement in late November is now expected to include revised employment forecasts, and business leaders are pushing for early signals that support will be available.
How the government balances fiscal constraints with the risk of wider labour market instability will have significant implications for HR and business planning into 2026 and beyond.
While many employers are committed to retaining talent, rising wage bills and uncertain trading conditions may force difficult decisions in the months ahead. The hope among business groups is that a more nuanced approach to taxation and support could help soften the blow — and avoid a repeat of the job loss levels seen during the height of the pandemic.
