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UK private sector employment contracted at the fastest pace in nearly four years in December, according to a closely watched survey that points to companies pulling back from hiring after Rachel Reeves’ tax-hiking Budget.
The S&P Global flash UK purchasing managers’ employment index, a sub-index of the monthly PMI, dropped to 45.8 in December, down from 48.9 in the previous month and the lowest since January 2021.
It was markedly below the 50 mark that indicates a majority of businesses reporting a lower headcount.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “Firms are responding to the increase in national insurance contributions and new regulations around staffing with a marked pullback in hiring, causing employment to fall in December at the fastest rate since the global financial crisis in 2009 if the pandemic is excluded.”
In her autumn Budget, which raised taxes by £40bn, the chancellor announced a £25bn rise in employer national insurance contributions from April 2025.
Businesses will start paying NICs on employees’ earnings from £5,000, rather than the current £9,100 threshold, and the rate will rise by 1.2 percentage points to 15 per cent.
Reeves has defended the policy but critics have accused her of denting business confidence, and many companies have said it will hit hiring and could lead to higher prices.
The survey also showed that business confidence sank to a two-year low in December as companies weighed up a tougher outlook for sales alongside rising costs, notably for staff as a result of changes announced in the Budget.
The headline PMI composite index was unchanged from the previous month at 50.5 in December, which Williamson said was indicative that the economy “more or less stalled in the fourth quarter”.
However, he added that the loss of confidence and increased culling of jobs “hints at worse to come as we head into the new year”.
