Why the Chancellor must revive the UK's labour market

The UK’s labour market is in trouble. The latest data from the Office for National Statistics shows that more people are now looking for fewer available jobs – a very worrying trend for both the country but also our Chancellor.

At the heart of the problem is the Chancellor’s decision to hike employer National Insurance Contributions from April. It’s a move that’s already having serious consequences. Businesses are holding back on hiring. Projects are being shelved. And the number of roles being advertised is shrinking. It’s plainly clear that the labour market’s stalling and with it, the UK’s productivity, business-to-business activity, and ultimately, economic growth.

But for some in the self-employed sector, there’s been a small silver lining. With the cost of hiring employees rising, some businesses are turning to freelancers instead. Recent research from Adzuna, for instance, has shown that more companies are now advertising for contractor roles since the rise in employer NI in April. 

But we’re also hearing from other freelancers that finding work is now more difficult, particularly good quality, well-paying roles. Repeat clients are telling contractors that they no longer have the budget for that piece of work they’ve always done. And a reported influx in the number of freelancers offering their services on job platforms is fuelling a race to the bottom on pay.

With Labour’s previous promise to not raise taxes on “working people,” they’ve arguably painted themselves into a corner when it comes to filling the ever-growing black hole in our public finances.

And with 10 weeks until the Budget, rumours of potential tax rises are swirling, and a recent reshuffle has only added to the concerns of onlooking businesses.

One of the rumours to emerge ahead of the Budget is that government could go after unearned income. We’ve written before about why this would be a mistake. Dividend income isn’t unearned; it’s the return for taking on the risk of running a business. Taxing it more heavily would punish the very people we should be supporting and breach their Manifesto commitment.

One piece of speculation is of a dramatic cut to the VAT threshold. We’ve called this out as a stealth tax before, and we’ll say it again: this would be a disaster for small businesses. It would drag our smallest businesses into the VAT system, adding complexity and cost at a time when they can least afford it.

There’s also talk of cuts to ISA and pension incentives. Any such tweaks would work against efforts to encourage economically inactive workers, particularly late-career professionals, back into work. Many of them are approaching retirement age but comfortable enough to have already left the labour market. If we want to bring them back and boost our productivity, we must incentivise their ability to save for later life, not further hinder it.

It’s not an understatement to say that these changes, if implemented, would have devastating consequences for a sector already struggling.

Why would an IT contractor nearing retirement take on extra work if it’s no longer worth it for their pension? Why would a young entrepreneur turn their side hustle into a limited company if they’re hit with more admin and less reward? And why would a company director keep going if their dividend income is taxed more heavily than ever?

If the Chancellor gets this Budget wrong, we risk pushing even more people out of work or out of business.

If we’re serious about growth, we need to back the self-employed. That means no more stealth taxes. No more broken promises. And no more policies that punish people for working differently.

Instead, we must prioritise our businesses again, both in terms of increasing business confidence so they take on new projects but also incentivising them to take on employees and freelancers again.

At IPSE, we’ll be making this case to the Treasury. Our Budget submission is coming in the next few weeks, and we’ll be urging the Chancellor and her team to change course. Because if we want a stronger economy, we need a stronger labour market. And that starts with supporting the people who keep it moving.