By Professor Len Shackleton, Editorial and Research Fellow
The latest ONS labour market data paint another gloomy picture of a jobs market that is steadily losing momentum. The rise in the national living wage, and its extension to younger people, higher employer NICs, and the baleful implications of the Employment Rights Act are all having their predictable consequences. At 5.2 per cent, the unemployment rate is now at its highest level since COVID, and there is little in the figures to suggest that the trend is about to reverse.
What is particularly worrying is the position of young people. The unemployment rate for 18-24 year olds has shot up from 12.7 per cent to 14 per cent in the latest figures. This group will include many recent graduates whose degrees have not lived up to their billing as a means to well-paid employment. For years, Britain prided itself on doing better at getting young people into work than many of our continental neighbours. But that advantage is slipping away. Recent OECD figures for a slightly earlier period suggest that our youth unemployment rate is now higher than the European Union average.
There are other warning signs scattered through the data. Full-time self-employment has fallen again, suggesting that the flexible, entrepreneurial part of the labour market is being squeezed. Vacancies have flatlined, pointing to weak hiring appetite among employers. Meanwhile, private sector employment has edged down slightly. The direction of travel is clear enough: firms are becoming more cautious, and opportunities are drying up.
In contrast, employment in the public sector has edged up again. Pay growth in the public sector, at an annualised 7.2 per cent, is now more than twice that in the private sector. At a time when businesses are struggling with higher taxes and mounting regulatory costs, this divergence is unlikely to be sustainable. It also risks distorting the labour market, drawing workers away from the sectors that actually generate growth and tax revenues.
There are fiscal as well as economic consequences. As unemployment rises and job creation slows, tax receipts fall and benefit payments rise. This puts further strain on already stretched public finances. The government’s claims to be promoting growth begin to look increasingly hollow when the labour market is moving in the wrong direction.
None of this should come as a surprise. When you raise the cost of employing people, increase payroll taxes, and load firms with additional legal obligations, hiring becomes less attractive. Employers respond by cutting vacancies, reducing hours, or not taking on new staff at all. It is basic economics, yet it is a lesson policymakers seem determined to ignore.
What the country needs is a major reset of labour market policy: a lighter regulatory touch, lower taxes on employment, and a renewed focus on making it easier for firms to create jobs. Unfortunately, there is currently little prospect of such a change in direction. Until that happens, we should expect more gloomy labour market releases in the months ahead.
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