Has Labour really made Britain’s jobs market worse?

Most of the trends in Britain’s jobs market are moving in the wrong direction, according to the latest figures from the Office for National Statistics (ONS), which suggest that unemployment is rising and wage growth is stalling. But it would be a mistake to read too much into just one set of numbers.

The figures have been seized on by the Conservatives as confirming that “Labour’s jobs tax” is “putting an intolerable burden on employers”. Helen Whateley, the shadow work and pensions secretary, said: “It’s working people who are paying the price for Labour’s war on business.”

Not directly, because these new figures only go up to March – the month before the higher national insurance contributions for employers came into effect. Conservatives argue that employers started cutting back their payrolls to prepare for the tax rise, but they also claim that the effect on employment will be even worse now that the increase has taken effect.

All of this is speculation, and it will be many months before we have a clearer idea of the effect of the tax increase. So far, the rise in unemployment has been small, and continuing a gradual trend upwards since the middle of 2022.

Unemployment is still pretty low by historical standards. At 4.5 per cent it is well below the 8 per cent rate that lasted for more than four years after the financial crash of 2008 – indeed, it is lower than the 5 per cent that prevailed before the crash.

The Conservative argument that Rachel Reeves’s tax rise is bound to lead to job losses is based on the law of supply and demand: that if you make it more expensive for companies to employ people, they will employ fewer of them – especially in lower-paid roles, as the national insurance increase has a disproportionate effect on those.

All other things being equal, this would obviously be the case, but all other things are not equal. For one thing, taxes were bound to rise after the election, regardless of its result. Different choices could have been made – public spending could have been cut, or different taxes could have been chosen. These might have had slightly different effects on jobs, but not much different, as any fiscal tightening tends to dampen economic activity.

It is possible that other tax rises might have had less of an effect on jobs, although as Keir Starmer points out at Prime Minister’s Questions every week, Kemi Badenoch has not said what tax rises she would prefer.

The government’s critics point out that wage growth has “stalled” – but it remains significantly above the rate of inflation, so on average wages are still rising by 2.6 per cent a year faster than prices. According to surveys, most people do not yet feel better off – possibly because of the psychological after-effects of a period of high inflation – but it is possible that sentiment could improve.

Other indicators were less good. The number of zero-hours contracts increased, despite the Labour government’s promise to ban such contracts if they are “exploitative”. And the number of people classed as “inactive” – that is, neither in a job nor claiming unemployment benefit – has increased.

There have been many complaints that these ONS figures are of poor quality. The Labour Force Survey suffered from a decline in response rates during the pandemic, and the agency has been working to try to improve them. It claims: “Response levels and rates have shown clear improvement because of these interventions.”

In recent months, the Bank of England and the Office for Budget Responsibility have both looked at other sources of information about the labour market, which is good practice anyway. At least the state of official statistics on the labour market is better than that of the immigration figures, which are labelled as “official statistics in development”.