Bank of England at odds with Chancellor's claims on impact of tax rises

Newsletter issue – January 2026

Catherine Mann, a rate-setter on the Monetary Policy Committee, told MPs that Rachel Reeves's policies - specifically the £26bn National Insurance tax increase and higher minimum wage - have slowed hiring. According to Bank of England analysis, about half of firms are reducing headcount to manage higher costs despite other options like cutting margins, automating roles and finding other efficiency savings.

Rachel Reeves rejected claims of a link between her tax rises and unemployment. She highlighted that 329,000 jobs were added this year and pointed to government initiatives like the youth guarantee.

However, figures from hiring platform Indeed indicate that the UK is the only large European nation to have suffered a drop in hiring for low-paid jobs since the pandemic. It is believed that the recent increase to the national living and minimum wages will continue to see a drop in lower-paid roles.