Wage growth slows as hiring outlook dims amid tax changes

As wage growth hits a four-year low, businesses brace for tax hikes and hiring freezes.

The latest data reveals a concerning trend in the UK job market, with wage growth experiencing its slowest pace since February 2021. According to the KPMG and REC UK Report on Jobs index, permanent wage growth has dropped from 52.8 in September to a near four-year low of 52.5 in October. This decline comes just ahead of the Chancellor’s Autumn Statement, raising alarms about the future of employment in the country.

Declining demand for staff

October marked the twelfth consecutive month of falling demand for staff, a trend that has left many businesses in a precarious position. The report indicates that permanent job placements have slumped at the fastest rate since March, as numerous firms have opted for recruitment freezes in anticipation of the upcoming Budget. This cautious approach reflects the uncertainty surrounding economic conditions and the potential impact of new tax policies.

Impact of tax changes on hiring

Chancellor Rachel Reeves has announced significant increases in employer National Insurance contributions, part of what is being described as the largest tax-raising Budget in history. Jon Holt, the group chief executive and UK senior partner at KPMG, expressed concerns that these tax hikes could further dampen hiring prospects. He noted that many chief executives are apprehensive about absorbing additional costs, which may lead to a more conservative approach to recruitment.

Concerns among business leaders

Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC), echoed these sentiments, stating that the demand for new staff has weakened since the recent election. He emphasized that the current situation is precarious, with firms needing to be convinced to invest in hiring. Recent changes to National Insurance thresholds, the minimum wage, and potential alterations to employment law have all contributed to a climate of uncertainty that businesses must navigate.

As the UK grapples with these economic challenges, the outlook for wage growth and hiring remains uncertain. The interplay between tax policies and business confidence will be crucial in determining the future landscape of employment in the country.