Why a ‘do no harm’ Budget isn’t good enough

In the world of labour market statistics, figures such as inactivity rates, nominal regular earnings growth, payroll numbers, and claimant counts may not immediately capture the public's attention. While these data points serve as crucial tools for economists and analysts in predicting Bank of England interest rate changes or gauging the overall health of the UK economy, it is important to remember that each number represents countless individual stories.

There are workers still unemployed, individuals signing on for benefits, businesses refusing to hire, and employees facing wage stagnation or increased costs.

Yesterday, while reviewing the latest figures, it became evident that the decline in vacancies (to levels not observed for over five years) was primarily due to small businesses cutting back on their expenditures. More than 13 million people, representing 47 percent of all private sector employment, work at establishments with fewer than 50 staff members.

Many of these individuals are part of micro businesses, employing fewer than 10 people. For these smaller enterprises, taking on another employee is a decision fraught with danger. As of April this year, the annual cost for an employer to hire a full-time, minimum-wage worker aged 21 or older has risen to £25,852, an increase of 15 percent over the past two years, up from £24,806 in 2025 and £22,438 in 2024.

During a recent visit to Newcastle, conversations with businesses of various sizes and industries revealed widespread concerns about the persistent rise in costs, including direct labour expenses, energy bills, and regulatory fees. However, the smallest employers expressed their frustration the most. The government's recent decision to impose additional costs, including National Insurance, during a period of economic uncertainty has been described as reckless arrogance.

In response, ministers are now scrambling to develop schemes to subsidize expenses that their own policies have rendered prohibitively expensive.

Economists have cautioned that a significant decline in hiring among the smallest businesses could signal a very difficult winter ahead. Next week's Budget presents an opportunity for Labour's John Healey to address some of the damage inflicted by his predecessor. However, it is essential for the government to go beyond a "do no harm" approach. A true commitment to amending the harm caused is now necessary.