Alice HaineThe UK’s jobs market continued to cool in the three months to September with unemployment edging up to 4.3%, wage growth, excluding bonuses, slowing and vacancy numbers dropping for a record 28th consecutive period between August to October.
Other indicators pointing to a loosening labour market included the alternative PAYE measure of the number of employees, which fell by 5,000 in October on the month.
The weakening jobs market data reflects the uncertainty companies faced in the run-up to Chancellor Rachel Reeves’ inaugural Budget on October 30 when employers, nervous about the tax and spending changes Reeves might roll out, put hiring decisions on pause.
Wage growth presented a mixed picture in the three months to September with annual earnings growth, excluding bonuses, falling to 4.8% in the three months to September, while annual growth in average total pay, which includes bonuses, rose to 4.3% over the same period – a reflection of one-off payments made to public sector workers during the summer of last year.
Wages may still be rising faster than inflation, with real terms growth of 1.9% on regular salaries and 1.4% on total pay once inflation is accounted for, but pay growth is likely to slow in the coming months as the effects of the Chancellor’s new tax measures eat into company spreadsheets.
With the majority of the Chancellor’s £40bn in tax rises falling squarely on the shoulders of businesses, companies struggling to absorb the extra costs will be forced to make some very difficult decisions.
Over the past week, some of Britain’s biggest employers have issued stark warnings about the impact the Chancellor’s tax rises will have on businesses and jobs.
Reeves’ decision to hike the rate employers pay in National Insurance to 15% next April, while also lowering the threshold at which they start paying the tax on each employee’s salary delivers a double blow to businesses.
Add in an uplift in the minimum wage for lower paid workers and companies may struggle to absorb the extra costs, something likely to lead to lower wage increases, job cuts and even the closure of smaller firms.
It means workers may not only find themselves out of a job but with also with fewer openings to source a new role from as reduced demand and hiring freezes impact recruitment.
Some businesses may also choose to pass on higher wage bills to consumers, which raises fears that inflation may be back on the agenda again.
This will come as a blow to workers, who have already endured huge financial strain over the past couple of years.
While it may be encouraging for now that pay packets are still stretching further than they did a year ago, employees that do manage to hang on to their jobs will find a larger share of their income gets swallowed up by tax as a result of fiscal drag.
Most personal tax thresholds have either been frozen or cut with people finding themselves dragged into paying higher rates of tax as their pay increases.
Job security will be a source of concern for employees as Christmas draws closer.
Keeping personal finances on track will remain key for households to ensure they have rainy day funds to draw on beyond the festive season.
Building a robust emergency fund to cover any periods without earned income, paying down expensive debts and even signing up for income protection are all ways to soothe financial fears, particularly for households with no back-up funds, who may struggle should the worst happen, and the main breadwinner loses their job.”
Alice Haine is personal finance analyst at Bestinvest
