The UK economy is facing increasing pressure as businesses brace for what the Confederation of British Industry (CBI) has termed the "worst of all worlds" due to Labour's recent economic policies. Chancellor Rachel Reeves' significant rise in employers' national insurance contributions (NIC) is anticipated to severely impact hiring and growth, with many firms now preparing for potential job cuts and reduced activity.
The CBI's latest growth indicator survey paints a grim picture, signaling firms' expectations to curtail output and employment, as well as rising price levels. Alpesh Paleja, CBI's interim deputy chief economist, emphasized, "There is little festive cheer in our latest surveys, which suggest the economy is headed for the worst of all worlds—firms expect to reduce both output and hiring, and price growth expectations are getting firmer." This caution arises amid rising concerns over economic stability following the economy's contraction by 0.1% for two consecutive months, leading to job insecurity and bleak forecasts for early 2025.
Paleja pinpointed the increased national insurance contributions, projected to net the government around £25 billion annually, as one of the primary catalysts behind the faltering economic outlook. This sentiment was echoed across various sectors, with businesses reporting the expectations for economic growth at their lowest since November 2022, the aftermath of former Prime Minister Liz Truss's tenure.
Lucy Powell, the leader of the House of Commons, acknowledged the unsatisfactory nature of the economic figures but defended the government's approach. "This is like turning around some huge oil tanker... We inherited this big black hole in the public finances which we had to put right," she stated. Powell affirmed the rationale behind the NIC increase, attributing it to securing funds for the National Health Service (NHS) and public services, saying, "It was difficult, but necessary."
On the contrary, Andrew Griffith, shadow business secretary, criticized the government's economic strategy, labeling the environment under Labour as "hostile for aspiration, for investment, and for growth." He added, "If there is a recession—and based on these CBI expectations, it increasingly seems likely—it will be made in Downing Street. Labour needs to urgently change course before the damage they are doing becomes even greater." These remarks depict the growing discord between the parties over the handling of the economy.
The shadows of austerity and economic difficulties loom large as businesses report declining confidence. The current economic climate has cast doubts over hiring intentions, with nearly half of the surveyed firms (48%) intending to reduce their workforce, the most substantial prospect of job cuts seen since the height of the COVID pandemic.
The concerns about Labour’s approach don’t end with the business sector alone; charities and service organizations have raised alarms about the broader societal impact of budget cuts and tax hikes, particularly on vulnerable populations. Leading charities for victims of domestic abuse and sexual violence assert their funding may dwindle as they face potential staff layoffs and cut services.
Ciara Bergman, CEO of Rape Crisis England and Wales, highlighted the grim reality, stating, "Without support, the few who do seek criminal justice would simply give up... centers may have to close their waiting lists or shut down their services." These statements underline the urgent need for government reconsideration of policies affecting these organizations.
Despite pledges from Sir Keir Starmer and his commitment to reducing violence against women and girls, the economic constraints posed by the tax hikes drew pointed criticism from the sector. Charity leaders have implored Starmer to address the funding shortfall, pointing to looming closures of resource centers for those most vulnerable.
Recent Office for National Statistics (ONS) data confirming zero growth between July and September adds weight to the worries surrounding Labour's economic management. Shadow Chancellor Mel Stride commented, "Today's figures demonstrate the latest failure at the hands of this Chancellor. The Labour Government must now urgently revisit their disastrous budget and align economic policy with growth—not decline."
The British Retail Consortium compounded this perspective, warning consumer confidence has plummeted since the budget announcement, advising retailers may have to raise prices or scale back on employment to cope with the increased costs resulting from the NIC rise.
Notably, as the government grapples with these serious economic issues, Tory business spokesperson Andrew Griffith remarked on the necessity for Labour to rethink its strategies, reiteratively describing the situation as one potentially leading to recession. "Every moment of delay is only compounding business confidence issues," he warned. Labour's initial months of governance have been described internally as characterized by "drift and dysfunction," with critics arguing this has been one of the worst starts for any government observed recently.
The economic forecast remains troubling, and as Labour navigates policy changes alongside criticism from both political opponents and business leaders, the upcoming months may be decisive for their economic strategy and its long-term impacts. With major sectors bracing for contraction and job markets tightening, the combination of tax increases and national insurance hikes may fundamentally reshape the UK’s economic environment as it heads toward 2025.
