The devastating impact of Rachel Reeves’s Budget was laid bare yesterday as research suggested Britain faces a new era of stagflation.
In yet another blow to the Chancellor, a damning report showed firms are now slashing jobs at the fastest pace since the financial crisis – excluding the pandemic – as they brace for tax hikes in April.
They are also putting up prices, fuelling fears of stagflation – a painful combination of weak economic growth and rising inflation.
Separate data from the Office for National Statistics showed the Government is borrowing far more than planned as the economic slowdown under Labour hits tax receipts and blows a hole in Ms Reeves’s Budget plans.
The reports made bleak reading for the Chancellor ahead of next month’s mini-Budget, when she’s expected to cut spending or raise taxes yet again to meet her own fiscal rules.
One analyst described the situation in the jobs market as ‘catastrophic’.
And Tory Shadow Chancellor Mel Stride said: ‘Under Labour, Britain is stuck in a vicious cycle of higher debt, rising inflation and increasing taxes.
‘Millions are paying the price of this economic mismanagement.’
Firms are now slashing jobs and putting up prices as a result of Rachel Reeves’ Budget last year, a new report has found
The closely watched S&P index of private sector activity in Britain – where scores above 50 show growth and those below show decline – fell to a two-month low of 50.5. Within that, employment crashed to just 43.5, the weakest since November 2020 and almost as low as in late 2008 during the global financial crisis.
Businesses are holding off on hiring ahead of measures announced in the Budget, including higher National Insurance payments and an inflation-busting minimum wage increase from April.
Recruitment is also on pause due to Labour’s proposed workers’ rights reforms, which include expanding the grounds for unfair dismissal and landing businesses with higher sick-pay costs.
Rob Wood, chief UK economist at financial research body Pantheon Macroeconomics, said the employment index ‘is now plumbing catastrophic depths’. He added: ‘The mood music is dire.’
Andrew Griffith, Tory spokesman for business and trade, said: ‘Business leaders are warning they are being hit hard by the Unemployment [Employment Rights] Bill and Labour’s National Insurance jobs tax, meaning job losses and higher prices.’
It comes after an Office for National Statistics report this week showed inflation hit a ten-month high of 3 per cent in January.
Ms Reeves was warned that she will be forced to slash departmental spending or break another promise by hiking taxes once again to make her sums add up. It follows official figures showing the Government borrowed £118.2billion in the first ten months of the fiscal year – nearly £13billion more than expected.
Shadow Chancellor Mel Stride said Labour is stuck in a ‘vicious cycle of higher debt, rising inflation and increasing taxes’
Analysts said the slump in economic activity on the Chancellor’s watch has hit tax receipts and left her needing to plug a gap in the nation’s creaking finances.
Susannah Streeter, of investment platform Hargreaves Lansdown, said: ‘To keep faithful to her fiscal rules it looks even more certain Reeves will have to increase taxes, cut spending or attempt a juggling act of both.’
Matthew Ryan, of financial services firm Ebury, said: ‘This will exacerbate already acute fears surrounding the possibility of a looming period of ‘stagflation’.
‘We are not overly optimistic on the outlook for Britain’s economy, not least due to the negative ramifications of the Government’s business tax raid, which looks likely to push up consumer prices and ramp up job cuts.’
Inheritance tax haul is already £7bn this year
by Lucy Evans, Money Reporter
Grieving families paid £7billion in inheritance tax in the ten months to January as more estates fall into the tax net.
The taxman raked in £700million more so far this tax year than in the same period last year — an 11 per cent hike, official figures revealed yesterday.
The Bank of England. HM Revenue & Customs is expected to bring in a record amount of IHT this year as more families pay death duties
It is expected HM Revenue & Customs will bring in a record amount of IHT this year as more families pay death duties.
IHT is levied at 40 per cent on estates above a £325,000 threshold. But this has been frozen since 2009 which has dragged middle-income families into the tax net as property values soar.
With Rachel Reeves saying in her Budget the freeze will stay until April 2030, yet more will be hit.
Shaun Moore, of wealth manager Quilter, said: ‘This relentless rise in IHT receipts is baked into government policy.’
