Finance — Business

British companies reduce workforce following tax increase

British employers significantly cut jobs at a rate not seen in four years, as businesses grapple with the financial implications of tax decisions outlined in Rachel Reeve's Budget.

, and Administrator

2025 September 13 . 6:48 PM

2 min read

Businesses in the UK drastically reduce workforce following tax increase

British companies reduce workforce following tax increase

In a significant move, a £25bn increase in National Insurance (NI) contributions took effect in April, coinciding with a rise in the minimum wage. This decision, made in Chancellor Rachel Reeves' October 2022 Budget, has had a noticeable impact on UK businesses and the job market.

According to a Bank of England survey of chief financial officers, UK employers reduced jobs at the fastest pace in four years. Over half of the surveyed companies attributed job cuts to the Chancellor's decision to increase employer NI contributions. This has led to a slowdown in annual wage growth, which remained subdued at 4.6% in the three months to August.

Despite the job cuts, wage growth for the year ahead remained unchanged at 3.6%. However, expectations for employment growth over the next year have weakened, falling to 0.2% in the same period.

The damning report places further pressure on Rachel Reeves, as ministers are scrambling to address an estimated £20bn hole in public finances. Companies have attributed their employment woes to the tax increases introduced in her first Budget. Since April, many UK companies across various sectors, especially retail and hospitality, have reported reduced profit margins due to the NI contributions increase.

Over two thirds of the surveyed companies reported lowering profit margins, and 20% of companies reported lowering wages, while a third opted to increase prices. Executives increased their expectations for inflation over the coming year by 0.1 percentage points to 3.3%.

Executives and industry bodies have warned against additional tax increases. The Treasury is considering various tax increases before the upcoming Autumn Budget on the 26th of November. This news comes as the UK economy is experiencing its lowest reading since October 2020, shortly after the country started recovering from the Covid-19 pandemic.

The annual rate of job cuts was 0.5% in the three months to August, a concerning figure that underscores the challenges facing the UK economy in the wake of the NI contributions hike. As the government navigates these challenges, the impact on businesses and employment remains a key concern.