Britain’s jobless rate has climbed to its highest level since the Covid pandemic, piling pressure on the Labour government as its economic credibility comes under fire ahead of a punishing Budget expected to include sweeping tax rises.
According to the Office for National Statistics (ONS), unemployment rose to 4.8% in the three months to August, a four-year high not seen since mid-2021, when the UK was emerging from its final lockdown.
The figures suggest the economy is faltering with business confidence sliding and households feeling the squeeze from weak wage growth and stubborn inflation.
“We see different patterns across the age ranges with record numbers of over-65s in work, while the increase in unemployment was driven mostly by younger people,” said Liz McKeown, ONS director of economic statistics.
While older workers are returning to the labour force in record numbers, 1.7 million over-65s are now in employment, up 11.8% year-on-year, the picture for younger Britons is deteriorating fast. The sharp rise in youth unemployment risks undoing years of progress made in reducing joblessness before Labour took office.
Wage growth is also stalling. Regular pay excluding bonuses rose 4.7%, the slowest pace in three years. After adjusting for inflation, which remained elevated at 3.8% in August, real wages were up by a meagre 0.9% (roughly £4 per week) leaving workers barely better off than a year ago.
Economist Charlie McCurdy of the Resolution Foundation summed up the bleak outlook:
“Real weekly wages have grown by just £1.50 in total since last September – barely enough to cover the cost of a Greggs sausage roll.”
Tax Hikes Loom as Economy Falters
The grim data land just weeks before Chancellor Rachel Reeves is expected to unveil a Budget heavy on tax rises. Treasury officials have briefed that Reeves intends to expand her fiscal “headroom,” potentially seeking more than £30 billion in extra revenue.
Such a move would heap further strain on struggling households and businesses already grappling with Labour’s rising regulatory costs and higher employment levies. Critics warn the government’s fixation on “fiscal buffers” risks deepening the slowdown it inherited.
Labour ministers have sought to strike a positive tone. Work and Pensions Secretary Pat McFadden insisted the government was taking action:
“The numbers of people in work and looking for work are at a record high. However, there are still too many people locked out of employment or training… That’s why we are reforming Jobcentres and investing in our Connect to Work programme.”
But opposition figures were scathing. Andrew Griffith, the Conservative shadow business secretary, said:
“Rising unemployment is a disaster for the economy and a tragedy for affected families.
The growing crisis of young people not being able to find work is a prime example of Labour taking our country in the wrong direction.
It beggars belief that the government are making things worse with their ‘back to the seventies’ employment legislation which every single business group opposes.”
Businesses Retreat as Hiring Freezes Bite
ONS data also show job vacancies have plunged to their lowest level in four years, excluding the pandemic. Just 717,000 posts were on offer in the three months to September, nearly half the number seen during the post-lockdown hiring boom in 2022.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, warned that the labour market is being throttled by rising costs and weak confidence:
“The jobs market is slowly suffocating, as skyrocketing employment costs and a sluggish economy trigger more organisations to limit headcount and restrain pay growth.”
Meanwhile, Martin Beck, chief economist at WPI Strategy, noted that April’s hike in employer National Insurance contributions and the sharp rise in the National Living Wage have “weighed on hiring,” even if the worst may be over.
“Even so,” he added, “the jobs market remains more fragile than at any time in recent years.”
Labour’s Growing Economic Headache
With unemployment back at Covid-era levels and the government preparing to raise taxes, doubts are mounting over Labour’s ability to steer the economy out of stagnation. Businesses accuse ministers of stifling growth with outdated labour laws and anti-enterprise rhetoric, while families are once again watching their disposable incomes shrink.
For many Britons, the promise of “change” is beginning to look more like a return to the failed economic management of past Labour governments.
