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This week’s briefing keeps a close eye on the UK economy, starting with government borrowing costs, which have now risen to their highest level since the late 90s. We also explore the sharp rise in jobless benefit claims, speculation over a possible new property tax, and the sector bearing the brunt of recent taxation changes in terms of job losses.
Read on for the full breakdown.
Gilt Yields Hit 25-Year Highs
Long-term UK borrowing costs have climbed to their highest level since the late 1990s, putting fresh pressure on Chancellor Rachel Reeves ahead of her Autumn Budget. Thirty-year gilt yields hit 5.64% this week, their highest since 1998, before easing slightly to 5.6%. The move comes as global bond markets react to Donald Trump’s battle with the US Federal Reserve, combined with weak growth and high debt at home.
Source: marketwatch.com
The UK has been hit harder than most peers. Since the start of August, gilt yields have risen 0.23 percentage points, compared with just 0.13 points on German Bunds and 0.06 points on US Treasuries. If sustained, this rise would wipe out almost half of Reeves’ budgetary headroom, cutting it from £9.9bn in the Spring to just £5.3bn, according to Capital Economics.
This leaves the Chancellor facing difficult choices. Economists warn that with debt servicing costs already high and growth forecasts likely to be downgraded, Reeves may have to raise as much as £27bn in new taxes or spending cuts to close the gap. That is on top of the £25bn targeted last year.
Market voices are clear that credibility is on the line. As Mark Dowding, fixed income CIO at RBC BlueBay, warned: “Investors are concerned with inflation and UK policy credibility. Unless the government makes spending cuts and the BoE halts QT, the black hole will keep growing, and the risk is a market tantrum.”
Treasury Eyes Landlord Tax
Reports suggest the Treasury is weighing up new taxes on landlords as part of the autumn budget, with rental income potentially being brought into the scope of national insurance. At present, rents are exempt, but officials see them as “unearned revenue” that could raise as much as £2bn a year. National insurance typically applies at 8% on employee earnings, but broadening the base to include landlords would mark a major shift.
The idea comes as the government faces a projected £40bn+ hole in the public finances. Sources suggest the Chancellor is looking at property as a key revenue source, with landlords, high-value homes, and even primary residences above £1.5m all under review. Estate agents warn this uncertainty is already cooling the housing market, with Zoopla noting that buyers may delay decisions until after the budget.
Any tax on rental income would be politically sensitive. A Guardian analysis recently revealed that one in eight MPs themselves declared rental income last year, including four cabinet ministers. Chancellor Reeves, who has spoken of making the system fairer, is among those receiving income from property.
The potential measures don’t stop at landlords. Officials have also examined whether a new national property tax could eventually replace stamp duty and whether local authorities could introduce a local levy in place of council tax. This would be part of a longer-term restructuring of property taxation designed to stabilise struggling local finances.
When pressed on the rumours, Education Minister Stephen Morgan avoided direct comment but stressed that Labour’s focus would be on fairness and growth. He said, “I want to make sure that our budget is based on our Labour values, and that is what Rachel Reeves will deliver. It’s not for me to comment on speculation. Our focus is on driving growth in the economy and delivering for working people up and down the country.”
Morgan’s comments highlight the party’s values, but whether Labour can realign its direction with those principles will be seen in the months ahead.
Record Rise in Jobless Benefits
The number of Britons on out-of-work benefits has surged to a record 6.5 million, up by half a million since Labour came to power last summer. This means more than 15% of the working-age population is now claiming some form of unemployment, incapacity or Universal Credit support — up from just 9% a decade ago. This figure even surpasses the pandemic peak of 5.9 million.
What makes the rise so concerning is its concentration in certain parts of the country. In Blackpool, 27% of working-age adults are now on jobless benefits, while Birmingham, Liverpool, and Glasgow report figures of 25%, 23% and 22% respectively. In some areas, that means more than one in four working-age residents are dependent on welfare.
A significant driver behind the increase is the sharp rise in young people claiming sickness benefits, often for mental health reasons. Since 2020, the number of under-25s on sickness benefits has jumped by 52% to a record 235,000. Former John Lewis boss Sir Charlie Mayfield, who is reviewing worklessness for the government, has warned that fit notes are acting as “a force field” between employers and staff.
The situation is compounded by the fact that over one million working-age Britons are now receiving benefits without any requirement to look for work. Labour has also moved 3.7 million Universal Credit claimants into categories exempt from job-seeking, up from 2.67 million when they took office in July 2024. The number required to seek work has actually fallen.
The government has blamed what it calls a “broken welfare system” inherited from the Conservatives, but critics argue Labour’s reforms have only made the problem worse. Shadow ministers say that without urgent changes, the crisis will deepen, leaving more and more people locked out of the workforce.
As Andrew Griffith, shadow business secretary, put it: “This shows Britain has a worklessness crisis which Labour seems determined to make even worse with more tax rises and additional employment red tape. Rather than watch it spiral out of control, Labour need to U-turn now.”
Hospitality Job Losses After Budget
The UK’s pubs, bars and restaurants have suffered more than half of all job losses nationwide since the Chancellor's tax rises and minimum wage changes. According to UKHospitality, around 90,000 jobs have vanished from the sector — 53% of the total 165,000 jobs lost across the economy. That means one in every 25 hospitality roles has gone in less than a year.
The cuts have hit staff numbers hard, leaving venues struggling to provide the same level of service. With fewer people behind bars, in kitchens, and on the floor, customers are facing longer staff are under greater strain. Businesses say the pain has been far worse than the 50,000 job losses forecast by the Office for Budget Responsibility.
At the heart of the problem are changes to National Insurance contributions. Reeves increased the employer rate from 13.8% to 15% while also lowering the earnings threshold from £9,100 to £5,000. For an industry reliant on part-time and lower-paid staff, that means a far bigger tax burden, pushing many operators to cut jobs and reduce hours.
Vacancies have fallen sharply too, with just 73,000 job openings in the three months to July — down a fifth since before the Budget and the lowest level outside the pandemic since 2014. With fewer opportunities and rising costs, investment in the sector is slowing, threatening a longer-term decline.
Industry leaders are warning of permanent damage. As Kate Nicholls, chair of UKHospitality, put it: “The number of job losses suffered in hospitality since the Budget is staggering. More than half of all job losses since October occurring in hospitality is further evidence that our sector has been by far the hardest hit by the Government’s regressive tax increases.”
Final Note
With government borrowing and interest payments climbing, record levels of jobless benefits, rising unemployment hitting certain sectors particularly hard, and the likelihood of new taxes in the upcoming Budget, this week’s briefing highlights an economy under pressure on multiple fronts.
The hospitality industry stands out as the sector hit hardest by job losses, squeezed by higher National Insurance contributions, an increased minimum wage, and disproportionately larger wage rises for younger employees. Given its reliance on high employment, this outcome was almost inevitable. By contrast, sectors such as technology are less affected, as they continue to prioritise smaller, more highly skilled workforces.
Speculation around the Budget continues to grow. Over recent weeks, discussions have ranged from dividend and capital gains taxation to the potential introduction of property-related taxes. Once the Budget is released, we’ll aim to highlight the changes most relevant to your investments and wider financial plans.
