UK business groups have issued a stark warning to the Government, arguing that rising employment costs are undermining job creation and urging the Chancellor to abandon any plans for new business taxes in the forthcoming Budget.

The call comes in response to the latest Office for National Statistics (ONS) labour market data for the three months to August 2025, which showed a further softening of the UK jobs market:

The unemployment rate rose to 4.8%, up from 4.7% in the previous three-month period (May to July 2025).

The number of payrolled employees fell by 10,000 month-on-month (early estimate for September 2025), and was down by 100,000 year-on-year.

Job vacancies continued their long decline, falling by 9,000 to 717,000 in the three months to September 2025.

Annual growth in regular average weekly earnings (excluding bonuses) slowed slightly to 4.7% in June to August 2025, though this remains above the current rate of inflation.

Employers Blame Rising Labour Costs

The British Chambers of Commerce (BCC) and the Institute of Directors (IoD) both pointed to the increasing cost of employing staff as the primary driver behind the downturn in the jobs market.

Jane Gratton, Deputy Director of Public Policy at the BCC, said: “Unemployment continues to edge up while job vacancies continue to fall. These are clear signs that employers are holding back on recruitment under the burden of soaring employment costs."

The BCC noted that while the rate of average earnings growth has slowed, it remains above inflation, putting further pressure on business finances. "Our latest survey shows that labour costs remain the biggest cost pressure for SMEs, cited by 72% of firms," Ms Gratton added. She warned that new measures such as the Employment Rights Bill are expected to impose an additional £5 billion in costs on firms, threatening investment.

The IoD echoed this sentiment, arguing that an increase in employer National Insurance Contributions (NICs), the Employment Rights Bill, and above-inflation increases to the National Living Wage are "directly increasing the cost and risk of employing staff and undermining job creation".

Alex Hall-Chen, Principal Policy Advisor for Employment at the IoD, stated: “A change of policy direction is needed if the government is to meet its target of stimulating growth and supporting businesses to create jobs."

Higher NICs Linked to Reduced Hiring

The IoD cited its own survey of 588 business leaders, conducted in September, which provided direct evidence of companies cutting staff in response to tax changes.

The survey found that 81.12% of businesses saw an increased employer National Insurance bill from April. Of those, 50.1% reported they had responded by planning or implementing lower employment. Other key responses included:

Lower profit margins (49.5%)

Lower wage increases (36.5%)

Seeking to increase productivity (28.3%)

Higher prices (22.0%)

Both the BCC and the IoD were clear on their demand ahead of the upcoming Budget: "There must be no more taxes on business in November’s Budget." The BCC further urged the Chancellor to "invest in workforce health and skills to help more people thrive in work".