There really is no hiding place for Rachel Reeves in this morning’s employment figures. The Office of National Statistics (ONS) release shows that 164,000 payrolled positions have been lost in the 12 months to July, Labour’s first year in office. Those figures are still provisional, but the figures for the 12 months to June show pretty much the same picture, with the number of payrolled positions falling by 149,000. In May alone, 26,000 jobs were lost. The unemployment rate rose to 4.7 per cent. For those who are in work, the figures show a healthy rise in real earnings of 0.9 per cent. The Bank of England said last week it doesn’t expect this to last, but for the moment, those in work are, on average, doing quite well – not that the productivity figures justify any real-terms increase in average pay.
The drop in payrolled employment is all the more stark considering that until last summer there had been strong growth in jobs. And it is not hard to find a culprit, either. Employers had been warning ever since last October’s budget, when employers’ national insurance was jacked up by 1.5 percent and the earnings threshold for contributions dropped from £9,200 a year to £5,000 a year, that they would have to lay off workers. Employment figures for the past few months – the NI rise took effect in April – show that it was no idle threat. Reeves has hit a ceiling, and inadvertently carried out a real-life demonstration of the Laffer Curve – jack up taxes too much and you dissuade economic activity, so you don’t get the revenue you were expecting.
If there is anything for the government to cling to, it is that overall employment did rise modestly to 75.3 per cent. That figure includes not just payrolled positions but also self-employed workers. In other words, it looks as if employers may be dodging the rise in NI contributions by shifting some workers out of regular jobs and into self-employment. The NI rises might not be the only reason for this. The Employment Rights Bill threatens to make life more onerous for employers, too, with its ban on zero hours contracts and the imposition of protections against unfair dismissal from day one of employment. It is about to become much riskier to take on new members of staff because it will be much harder to get rid of them if they prove hopeless at their jobs.
The irony of the trend in the labour market from payrolled employment to casual work is that Labour, you might remember, promised to reverse the growth of the gig economy. It was going to do away with the world of short contracts and temporary employment and give workers much more security in the workplace. From today’s labour market figures it appears that it is achieving the exact opposite.
Will Reeves change course? That is highly unlikely. The shocking borrowing figures and lousy economic growth of the past few months is pushing her further into the destructive cycle of higher taxes curtailing economic growth. Moreover, there is little chance of the government’s drive on employment rights being watered down. No-one should be surprised if the loss of jobs accelerates over the coming year.
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