Rachel Reeves is safely on the back benches but her dire legacy lives on.
Rachel Reeves has gone but her evil jobs tax lives on (Image: Getty)
That’s the problem with politicians. They don’t just create havoc while in office; their decisions cause damage long after they’ve moved on, with Reeves’ mistakes still looming over us. Reeves isn’t alone. Decisions made by former Labour chancellor Gordon Brown plague us to this day. Notably his destructive stealth raid on private sector final salary pensions, and his decision to sell 395 tonnes of Britain’s gold at an average $275 an ounce, a fraction of the $5,500 it hit in January. Thankfully, Reeves wasn’t in Number 11 as long as Brown. But the damage she did is still wrecking lives.
Many will remember Reeves for the winter fuel payment disaster, her welfare cuts U-turn and the upcoming pensions inheritance tax debacle. Not to mention her Cash ISA cock-up, and two disastrous Budgets marked by months of rampant speculation and almost £70billion of tax rises. Yet her biggest mistake passed many by.
In her first Budget, she unleashed her “jobs tax”. This raised employer National Insurance from 13.8% to 15%, and slashed the NI threshold from £9,100 to £5,000. Reeves thought she was being clever. She assumed working people wouldn’t notice because bosses paid. But they’ve felt the full force of this terrible policy, especially the young.
As Labour-backing tax expert Dan Neidle warned, this was the “worst possible tax of all”, a direct penalty on jobs, hiring, productivity and growth. The lowest-paid suffer most.
Employers passed some of the cost to customers through higher prices, stoking inflation. The rest was passed onto workers in the shape of lower pay rises, fewer hires and more redundancies. Many shops, pubs and restaurants were already struggling to make a profit. Reeves tipped them over the brink. Result: more lost jobs.
Young people and those on low pay have suffered most. Charging NI on workers earning just £5,000 made part-time hiring less attractive, both financially and administratively. Reeves also waved through two big minimum wage increases. She took the glory, businesses footed the bill. This has left youngsters scrambling around for a dwindling number of entry-level jobs. The UK’s 1.25million NEETs is a national disaster.
I should give an honourable mention to Angela Rayner. Her Employment Rights Act, which came into force in April, is doing its bit. Giving new employees statutory sick pay from day one deters employers from taking on young, unproven staff, or those with mental health problems.
When Reeves became chancellor in July 2024, the headline unemployment rate was 4.1%. This week’s ONS figures put it at 4.9%, while vacancies slump. Incredibly, 110,000 private sector jobs have gone since the start of the year. The public sector has taken on 42,000. Without that, the headline number would be even worse.
That’s not all down to Reeves, but her policies haven’t helped. It means lower income tax and VAT receipts, and more benefit claims, wiping out a chunk of the £25billion her jobs tax was due to raise. This also leaves a shrinking band of private sector workers to fund Labour’s public sector hiring spree.
Andy Burnham is complaining about vape and betting shops taking over our streets. But they’re a symptom of decay, not a cause. They’ve moved in as respectable firms shut down. Reeves paved the way here, too, with her “monster” increase in business rates of up to 182%.
Burnham and Chancellor John Healey are pondering which taxes to increase in the Budget on October 28. They should start by reversing Reeves’s job blunder. Instead, it looks like they’ll spend much of their time debating what they can tax to destruction next.