In a damning indictment of Chancellor Rachel Reeves’ economic stewardship, the National Institute for Economic and Social Research (NIESR), the UK’s oldest and most respected research institute, has laid bare the catastrophic consequences of her £40bn tax raid, with the hike in employers’ National Insurance Contributions (NICs) singled out as a particularly egregious misstep. The NIESR’s overnight report on the UK’s domestic economic conditions paints a grim picture, warning that Reeves’ policies are not just hampering growth but are “playing a more dominant role” in the nation’s economic malaise than external pressures like Donald Trump’s tariff threats. Far from delivering the promised “national renewal,” Reeves has plunged the UK into a precarious position, with businesses battered, workers squeezed, and the economy teetering on the edge of a self-inflicted crisis.
The centrepiece of Reeves’ economic strategy—or lack thereof—was a £25bn increase in employers’ NICs, a policy that NIESR excoriates for its devastating impact. By raising the NIC rate to 15% and lowering the threshold at which businesses start paying, Reeves has effectively slapped a tax on jobs at a time when economic confidence is already wafer-thin. The report is unequivocal: this hike “leaves the budget—and the UK economy as a whole—in a risky and vulnerable position.” The decision to pile costs onto businesses, particularly in low-wage sectors like hospitality and retail, is not just shortsighted; it’s economic vandalism. The Office for Budget Responsibility (OBR) estimates the NICs increase will equate to losing 50,000 workers from the economy, as firms scale back hiring and hours to cope with the added burden. Real wages are projected to stagnate for two years, with 76% of the NICs cost passed onto workers through suppressed pay rises and higher prices. So much for Labour’s pledge to put “pounds in people’s pockets.”
NIESR’s analysis cuts through Reeves’ rhetoric like a scalpel. While she touts investment in public services as the path to growth, the institute warns that her tax rises are actively undermining that goal. The report slashes its 2025 growth forecast to 1.2% from 1.5%, with projections for subsequent years similarly downgraded. By 2029/30, NIESR estimates a £57bn shortfall in public finances—equivalent to $76bn—driven by weaker growth and higher borrowing costs. This isn’t just a blip; it’s a structural failure. Reeves’ budget, hailed as a “gamble” by the Institute for Fiscal Studies, is now exposed as a reckless bet that’s backfired spectacularly. The OBR’s earlier warnings that growth would dip to 1.5% by 2028, down from a pre-budget forecast of 1.7%, are now compounded by NIESR’s even bleaker outlook. Reeves’ claim that her policies would boost long-term growth by 1.5% has been debunked as little more than wishful thinking, with the OBR noting any benefits won’t materialise until the 2030s—long after voters have felt the pain.
What makes Reeves’ approach so galling is its contradiction of Labour’s own manifesto. She campaigned on growth, promising to shield working people from tax hikes. Yet, by targeting employers’ NICs, she’s indirectly taxed workers through lower wages and higher costs. The Resolution Foundation has called this “a tax on working people,” and the IFS notes it disproportionately hits larger firms employing low-wage workers, potentially choking off minimum-wage jobs. Reeves’ sleight-of-hand—claiming she’s kept her promise by not raising employee NICs—fools no one. As NIESR points out, the economic damage is compounded by a 6.7% rise in the national living wage, which, while well-intentioned, adds further pressure on businesses already reeling from the NICs hike. Inflation, forecast to hit 3.3% in 2025 and 3.1% in 2026, is being fueled by these policies, forcing the Bank of England to keep interest rates higher—potentially at 4.25% with only two quarter-point cuts expected next year. For households, this means pricier mortgages and less disposable income, with a typical £200,000 mortgage costing an extra £360 annually.
The NIESR report also skewers Reeves for her fiscal irresponsibility. Her budget left just £9.9bn of fiscal headroom, a buffer now entirely eroded, leaving no room to absorb economic shocks. With global trade tensions escalating—Trump’s proposed 21% tariffs on UK goods could shave 0.4% off GDP—the UK is uniquely exposed. Yet, as NIESR’s Benjamin Caswell notes, “domestic factors” like the NICs hike are doing more damage than external threats. Reeves’ refusal to acknowledge this is either willful ignorance or political cowardice. Her insistence that no further tax rises are needed, reiterated ahead of the March 26, 2025, Spring Statement, strains credulity. Economists across the board, from NIESR to Capital Economics, warn that without spending cuts or more taxes, Reeves risks breaching her own fiscal rules. The £10bn she claimed as a safety net has vanished, and with it, any pretence of economic competence.
Businesses are sounding the alarm, and they’re not being heard. The British Institute of Innkeeping estimates 80% of pubs are now unprofitable, with 75% cutting staff hours and a third facing redundancies. GP surgeries, care homes, and charities are similarly blindsided, with Reeves seemingly unaware of the collateral damage. The Institute of Directors calls the budget a “blow” to investment, and firms are already curbing hiring and expansion. The London stock market, down 3% in December 2024, reflects investor fears of a flatlining economy. Meanwhile, Reeves’ much-vaunted infrastructure plans—1.5 million homes, a Heathrow third runway, an Oxford-Cambridge Growth Corridor—won’t deliver meaningful growth for years, leaving the economy exposed in the short term.
Reeves’ defenders might point to the International Monetary Fund’s tepid endorsement of her spending increases, but even that comes with caveats, overshadowed by the Resolution Foundation’s stark warning that the UK remains a “stagnation nation.” Her claim to have “fixed the foundations” is risible when those foundations are crumbling under the weight of her own policies. The Telegraph’s report of a “short-term sugar rush” from public spending, fading by 2027, underscores the lack of a coherent long-term strategy. Reeves’ budget is not a plan for growth; it’s a recipe for unemployment, insolvencies, and economic decline.
The chancellor’s hubris is matched only by her hypocrisy. She lambasted the Conservatives for leaving a £22bn “black hole” but has dug a deeper one herself. Her refusal to reverse course, even as evidence mounts, suggests a politician more concerned with political expediency than economic reality. NIESR’s warning that “now is not the best time to take a gamble” should haunt Reeves. She’s not just gambling with numbers—she’s gambling with livelihoods, businesses, and Britain’s future. If she continues on this path, the verdict of history will be unforgiving: Rachel Reeves didn’t just fail to deliver growth; she actively destroyed it.
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