Labour's National Insurance hike is starting to bite

The unemployment rate has risen to 4.6 per cent, the Office for National Statistics has revealed. This morning’s figures mark the first proper reading of the jobs market since April, when the minimum wage was hiked and the £25 billion raid on employer National Insurance started. It’s not just the joblessness rate rising: the number of payrolled employees fell by 55,000 between March and April, and by 115,000 compared to a year earlier. A flash estimate for May (which will be revised) shows an even starker picture: down 109,000 in a single month and 274,000 year-on-year. In other words, a city the size of Southampton has effectively been wiped off the payroll.

The ONS notes that ‘surveys suggest some firms may be holding back from recruiting new workers or replacing people when they move on.’ Job vacancies have fallen by 63,000 over the quarter – the 35th consecutive quarterly drop – and are now 59,000 below pre-pandemic levels.

Meanwhile, there’s a general cooling off in the jobs market too, with wage growth slowing slightly to 5.3 per cent – though that's still 2.3 per cent above inflation, meaning more cash in the average workers’ pocket.

With jobs now falling so sharply, wage growth will surely start to come down quicker too as the number of unemployed workers per vacancy begin to increase. Though our labour market is doing strange things at the moment and those two figures seem less connected than they should be – something that continues to make Bank of England’s rate setters nervous.

The huge fall in payrolled employees surely can’t be put down to anything else other than the increased cost the new government has put on employing people. Changes set to be brought about by the employment rights bill could make that even worse. Given how prone to a U-turn Number 10 and 11 Downing Street now seem on fiscal policies, there will be mounting pressure for a rethink on how businesses are taxed and how employers are treated. If jobs continue to fall off the payroll at this speed that pressure may become irresistible.