How Rachel Reeves killed the private sector pay rise

Telegraph

17-02-2025

Pay growth has flatlined as employers brace for Rachel Reeves's £25bn National Insurance raid, a leading jobs analyst has warned.
Figures from Employment Hero show that average pay growth in small and medium businesses collapsed to 0pc in the first three months following the Chancellor's October Budget.
The company said that employees were 'feeling the squeeze' as businesses sacrificed pay rises to prepare for Labour's 'jobs tax' from April.
Experts have already warned that Ms Reeves's changes have threatened national security, raised council tax and dragged 750,000 workers into National Insurance.
Employment Hero analysed real-time data from 90,000 workers in businesses with up to 500 workers. Its data shows that average pay for full time workers jumped by 1.1pc in the three months leading up to October last year.
However, this fell to 0pc in the three months to January following the Chancellor's sweeping changes to employer National Insurance contributions in her maiden Budget.
In the same period the previous year, average pay grew by 0.8pc.
Meanwhile, public sector workers will benefit from an above-inflation pay hike of at least 2.8pc from April after Ms Reeves approved proposals last year.
Currently, employers only pay National Insurance contributions when an employee earns more than £9,100, but Ms Reeves has decided this will fall to £5,000 from April 6. The rate payable will also increase from 13.8pc of salaries to 15pc.
Kevin Fitzgerald, of Employment Hero, said: 'Small and medium businesses are under increasing pressure as the looming jobs tax forces them to be cautious with wage bills.
'Rather than increasing pay, many are having to set aside funds to cover rising employment costs. While lower interest rates may offer some relief to overall business expenses, they don't necessarily translate to higher wages for staff.
'International research on jobs taxes makes one thing clear – it's workers who ultimately feel the squeeze.'
In November, consultants Barnett Waddingham warned that the changes could cost workers up to £2,000 a year in retirement.
The following month, a survey carried out by the Bank's Decision Maker Panel showed that more than half of businesses also expected to raise prices and cut jobs.
Employment Hero also said that growth in full-time employment had been 'weak' since the Budget.
It reported that while January saw a slight seasonal increase of 1.4pc, it followed falls of 1.7pc in November and 0.2pc in December.
Jeff Moody, of the British Independent Retailers Association, which represents small firms, said the figures painted a 'concerning picture' for small businesses.
He said: 'Stagnant wage growth among firms with fewer than 500 employees, coupled with unstable employment patterns, suggests that the Chancellor's National Insurance changes aren't delivering the boost that was promised.
'While we saw a modest seasonal uplift in employment of 1.4pc, this barely scratches the surface after previous months' losses.
'Our independent retailers are caught in a perfect storm – they want to reward their hard-working staff but are increasingly struggling to do so in the current climate.'
A HM Treasury spokesman said: 'For 14 years, politicians accepted a UK economy that failed working people, we won't. That's why at the Budget we protected people's payslips from higher taxes, froze fuel duty and increased the national living wage making three million people £1,400 a year better off from April.
'Official data shows that real pay growth increased to its highest rate in three years in the three months to November and in our Plan For Change we have been clear that we will go further and faster to kickstart economic growth so working people have more money in their pockets.'