Rachel Reeves’ Budget has sparked a “hiring recession” as recruitment firms warn Labour’s record tax raid is having a chilling effect on Britain’s job market.

The Chancellor’s hike to employers’ National Insurance (NI) is set to rake in around £25billion a year for the Treasury but is forcing job cuts, an expert has said.

Michael Stull, Managing Director of ManpowerGroup UK, said Ms Reeves’ raid has sparked a sudden halt in hiring in November.

He also warned that part-time workers as well as low paid jobs would be hit the hardest by the NI contributions increase.

Mr Stull told the Telegraph: “The numbers are very similar to a recessionary period. I know we’re not in a recessionary period, but from a hiring perspective, we are.”

JC Townend from Adecco, the world’s second-largest recruitment firm, told the same publication it was too early to deliver a decisive view as to how employers are coping with the hike, but hiring is likely to suffer.

She said Adecco has started to see early signs from clients that they may need to offset the extra costs, likely leading to a rethink of future workforce needs.

Ms Townend also warned Deputy Prime Minister Angela Rayner’s flagship changes to workers’ rights would have far-reaching consequences for the flexible workforce which risks impeding job creation, especially in retail and hospitality.

She said if employers are forced to guarantee hours, there could be a ripple effect where businesses find it more economical not to hire as many people in the first place, hitting lower earners especially.

The Government’s Employment Rights Bill includes a ban on zero-hours contracts, enhanced rights for workers and the creation of a Fair Work Agency to boost enforcement of workplace rights.

Warnings of a hiring recession come as a major survey by the Confederation of British Industry (CBI) found firms expected to reduce both output and hiring in 2025.

Ms Reeves’ hike to employers’ National Insurance was highlighted as one of the reasons for the gloomy outlook.

Alpesh Paleja, the CBI’s interim deputy chief economist, said: “There is little festive cheer in our latest surveys, which suggest that 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.

“Businesses continue to cite the impact of measures announced in the Budget – particularly the rise in employer NICs – exacerbating an already tepid demand environment.”

Most Popular Comments

“This was all in the BoE report. They also said employers are looking to outsource to other countries to avoid the NI hike. Well done Reeves!”

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“Anyone with an IQ bigger than Rayner’s Doc Martens could see this coming. Labour have …” 11

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The CBI’s growth indicator survey, based on responses from 899 companies between November 25 and December 12, found expectations for growth are now at their weakest since November 2022 in the aftermath of former prime minister, Liz Truss’s, chaotic tenure in No 10.

Business volumes in the services sector are anticipated to decline while distribution sales and manufacturing output are also expected to fall sharply in the three months to March.

Revised figures published on Monday show Britain’s economy flatlined in the third quarter of this year, with the Office for National Statistics (ONS) saying UK gross domestic product (GDP) showed no growth between July and September.

Statisticians had previously estimated 0.1% growth for the quarter. The ONS also revised down its growth reading for the second quarter of 2024, to 0.4%.

In September, it said it thought GDP had increased by 0.5%, which was itself a reduction on previous estimates.