John Oxley is a consultant, writer, and broadcaster. His SubStack is Joxley Writes.
While speculation rages about the future of Sir Keir Starmer’s job, for many people in Britain, the worst has already happened. ONS data published this week showed unemployment was back up, topping 5 per cent again. The number has climbed steadily since Labour came to power, and now all indicators, from payroll to vacancies to real wages, point towards a soft jobs market.
Some of this is beyond the government’s control. The closure of the Straits of Hormuz threatens a supply shock, and businesses are naturally bracing for it. Energy costs are rising, broader inflation is set to surge, and households are cutting back accordingly. It is not a time of economic optimism. The employment effects have, however, been compounded by the government, and workers are paying the penalty.
Ever since Labour came to power, there has been a conceit at the centre of their economic programme. The pre-election pledge was not to raise taxes on working people. In a literal sense, it has been kept. Rates of personal National Insurance and Income Tax have remained the same. Increased spending, however, has forced the Chancellor to look elsewhere for money. Instead of an open rise, there has been a series of sleight-of-hand manoeuvres that have left many worse off.
The National Insurance rise was perhaps the most egregious of these. Technically, it kept to the pre-election pledge. In practice, however, it has an obvious sting for workers. The extra cost of employing someone will, in effect, be routinely passed on to the employee in the form of lower wages. For lower-paid, less value-creating roles, it will mean fewer jobs are economically viable. This will harm job creation and lead to cuts.
This is what lies behind the latest numbers. Unemployment has surged since the changes came in, with retail and hospitality particularly badly affected. Younger workers, who tend to be in less productive roles, have suffered particularly sharply, with youth unemployment reaching its highest point since 2014. While Iran and Hormuz will have an impact, it has been greatly exacerbated by government policy.
In doing this, the government have sought to have the best of both worlds – raising taxes without attracting the unpopularity of saying that’s what they are doing. Instead, they have done something far worse, adopting policies that are both damaging and dishonest. Moves like the NI rise and freezing income tax thresholds might not be called tax rises, but they feel like them.
In some ways, they are worse. Ordinary tax rises might not be popular, but they can be targeted. They are generally progressive, hitting the better-off the hardest, with those on lower incomes compensated elsewhere in the system. The National Insurance increase is not like this. It imposes the most important costs on the most marginal jobs, often held by the worst off. The impact on younger workers is particularly stark, with periods of unemployment early in your career likely to leave you hanging behind for life. More than that, the changes are simply deceitful. A straightforward tax rise would be legible and accountable. This is neither.
The approach is symbolic of Labour’s failure mode throughout much of this government. Rather than making a credible argument for what they want to do, they have tried to sneak it through unnoticed. The result is a population that is still hurt by the policy but hasn’t even heard an honest rationale for what is happening. By ducking the harder conversation, the government has instead been caught in an obvious trick.
It’s easy to see why Labour is losing working-age votes. By discouraging employment, the government has cost jobs and stymied wage growth. People are feeling the squeeze and are already anticipating a further inflation shock. The challenge for the right is that most of that dissatisfaction is currently bleeding towards the Greens. The Conservatives still languish with working-age voters, and Reform have made little headway in that demographic. The right still faces a generational squeeze with voters under 40, even when they are coming off badly from Labour policies.
This makes it hard to forge a path back to power. It also makes for the sort of failure mode that undermined our time in government. Becoming more beholden to older voters became self-reinforcing, with policies that mostly favoured pensioners and dismissive attitudes towards younger workers. As a result, the party had little to offer them. This is now gradually changing, with the party moving towards its New Deal for Young People – but there is more that can be done.
Labour’s trajectory with jobs is a vindication of the argument we have made for decades. If you tax jobs, you get fewer of them. For job creation and rising wages, you need a system which doesn’t penalise employment and shifts the tax burden away from the most precarious. You must also be honest about this and where the costs come from elsewhere in the budget. A government needs a programme which is honest and balanced, not strict pledges it then tries to weasel around.
Politics should be about persuasion. Labour were too frightened to make their case for higher taxes head-on. Instead, they have ended up with a worse set of policies that are still unpopular. For those affected, who are now struggling to find work or seeing their wages attacked once again by inflation, this has been a catastrophic course of action. There is little comfort to them in the fact that Reeves has technically kept her pledge. The costs were probably worse than her breaking it.
The Conservatives need to make this more than an “I told you so” moment as voters move from Labour to the Greens. The party is at its best when it makes a persuasive argument for free markets, which connects with what voters are looking for. Labour’s rapid fall has shown the danger of dishonesty. We need to make the case for better business conditions, alongside a fair tax system to support public services. The question the Conservative Party now must answer is whether it can make an honest argument about work, taxation and opportunity that reaches them, and whether, after everything, they will listen.