The first Labour Government in a generation, the biggest increase in taxes since 1993. A bold maneuver to bolster growth, or a misstep, which will cost Labour at the next election? The challenge facing policy makers is real. The size of the national debt is so large, that interest payments alone are now larger than the entire policing budget. And in order to prevent the national debt to stop increasing relative to GDP, the country needs annual growth of 2.5% or more.

The gambit by Labour is to drive growth through the state. National initiatives driven from the Government, state planned initiatives and massive infrastructure projects, where this is to be paid for by more borrowing and increased taxes. However, there is a real risk their sums fall short, and the gilt markets rising since the budget show the challenge of this strategy. With that, there is a question as to whether the tax increases will actually generate the amounts forecast, and if they fail to, what then? More tax increases? In the meantime, the Business class is being asked to shoulder the biggest burden of the tax rises, equally as Rachel Reeves has already admitted, increases in taxes on employees will likely result in lower wage growth in pay bargaining this winter, so workers will likely feel the impact that way.

In the meantime, especially in sectors with low margins, there is likely to be a corporate response and the increase in the national minimum wage in particular, is likely to lead to an acceleration in automation. The challenges are multifold. Not only is the minimum wage increase significant, but for people who were currently earning above the minimum wage, they would seek a pay rise to maintain their salary differential compared to lower skilled employees. The implementation of automation is typically at the intersection of the cost of capital and people. So taking agriculture as an extreme example, in Japan which has high labour costs, the level of automation is up to 100x higher than the UK. The point being therefore by raising the minimum cost of the workforce, the move to automation is accelerated across the low wage economy, be it agriculture, hospitality or retail as just three examples.

The increase in employer national insurance contributions will be seen by the business community as a betrayal, and whilst this is unlikely to impact employment numbers too much in the short term, the risk is that this sends a signal. The challenge facing the Government, is that there are only really three areas of tax that generate substantial sums. Income tax & NICS (workers,) VAT and Corporations (Profits and Employer NICS.) By stating that working people are off-limits, this means that the grouping which will need to meet the cash call, will be business. And given the Government is still running a shortfall, the chances are that taxes on business will rise again, before the end of the decade, assuming Labour stay in power. This means that for the business community, the smart next step will be to increase outsourcing, where automation is not possible. In sectors like IT and Finance, there are now a multitude of outsourcing hubs, from Eastern Europe to the Philippines, where providers can offer significant cost savings. Similarly, already the US business community has sounded the alarm about the potential increased cost of doing business in the UK and there is a significant risk of deferred investment.

There are only concerns about the increase in capital gains tax along with the removal of non-domiciled status. For entrepreneurs and high net worth individuals, the impact of these tax policies will be to reduce the amount of people who come to the UK to invest, similarly, it will make the UK less attractive for people already here. The negative multiplier on people with capital leaving therefore is real. The Labour party will argue that this is all necessary to drive growth, equally that is a hollow claim, when it is considered that their first actions upon coming to power have been to agree to inflation busting pay rises for the public sector, with no requirement to improve productivity.

With all this in mind, the sectors most likely to benefit from these policies will be:

• AI and automation – companies will look to maximise productivity from existing staff, to compensate for higher wage costs. Businesses that facilitate that will be the biggest winners
• Real Estate & Construction – house building plans are on a scale not seen for a generation, so businesses in this sector are set to surge
• Cleantech – Ed Miliband has made this his holy grail, to reduce energy dependence and increase the amount of clean energy the country creates – businesses in this area will also benefit

However, these are only a fraction of the UK economy, and it is hard to see how employment in the private sector increases over the coming year as a result. Looking at the year on year data, being pragmatic, it is likely that businesses put on hold immediate non urgent recruitment plans, as they re-evaluate the cost of their teams, so our forecast is for the November and December vacancy totals to be lower than the 2023 totals. And as for 2025? Without a change in policy, it is hard to see why businesses will increase their investment levels into the UK. As with life, we can hope for the best, but it would be prudent to plan for the worst.