The recent 1.2% increase in employers’ National Insurance contributions appears to be having a major impact on UK employment, with May 2025 seeing a drop of 109,000 payrolled workers — marking the steepest decline in four years.
Early estimates from HMRC suggest a 0.4% reduction in payrolled employment compared to April 2025, alongside a rise in the national unemployment rate to 4.6% — its highest level since April 2021, just after the height of the COVID-19 crisis.
The hospitality sector has borne the brunt of the downturn, with job numbers falling by 5.6% across hotels, pubs, and restaurants. IT and telecoms followed closely with a 3.4% drop, while retail experienced a 2.4% fall. Total employment across all sectors declined by 0.9%.
Kate Nicholls, chief executive of UKHospitality, stated:
“Losing more than 100,000 jobs across the economy in a month goes far beyond the worst-case scenario predicted by the government’s own fiscal watchdog, major banks, and countless business groups. These shocking figures should make it abundantly clear to the government that the changes to employer NICs are inflicting more harm than good, and they should be reviewed and reversed urgently.”
The full effect of the NIC changes is yet to be understood. As HMRC only has limited data from employers since the rate rise on 6 April, the Office for National Statistics has cautioned that:
“Early estimates are subject to significant revisions as more returns are received by HMRC next month. The earlier timing of the data extract for May 2025 means these estimates are more uncertain than usual.”
Commenting on the implications, Daniel Herring, head of fiscal and economic policy at the Centre for Policy Studies, said:
“The provisional employment data confirms our concerns about Labour’s job tax. When you make it 11% more expensive to hire minimum wage workers, businesses simply stop hiring.
The CPS warned that this government’s National Insurance hike would hurt job creation, and these early figures suggest we were right. Payrolled employment appears to have fallen by 274,000 over the last year, with unemployment rising to its highest rate since 2021.”
A long-term shift is also being observed, with more people leaving traditional employment for self-employment or gig economy roles — particularly in retail and hospitality. Despite falling employment, PAYE salaries remain higher than before the pandemic, influenced by wage growth and rising tax pressure.
London recorded the sharpest drop in payrolled jobs at 2.3%, with similar trends seen in the Scottish Borders and parts of East Anglia.
Looking at the wider picture, HMRC data showed 55,000 fewer payrolled employees in April compared to March, and a total annual fall of 115,000 between April 2024 and April 2025.
However, demand for talent remains high in key sectors such as accountancy, construction, and healthcare, leading to continued wage pressure. Regular pay excluding bonuses grew by 5.2% in the three months to April — down slightly from 5.5% previously, but still significant.
Professor Joe Nellis, economic adviser to MHA, observed:
“This persistent high wage growth is something that the Bank of England has their eye on. If it continues, it will be a sore spot for an already divided Monetary Policy Committee as it explores further interest rates cuts this year.”
The inactivity rate among those aged 16 to 64 fell to 21.3%, suggesting that efforts to reduce NHS backlogs may be encouraging more people back into work.
Meanwhile, the estimated number of job vacancies dropped by 63,000 over the quarter, leaving 736,000 open positions between March and May 2025.
