State pension 'under pressure' as worrying employment figures released

The Government could struggle to cover the state pension bill if its tax receipts take a hit, one expert has said. The full new state pension currently pays £230.25 a week, after rates increased 4.1 per cent in April thanks to the triple lock.

The triple lock ensures payments go up in line with whichever is highest: 2.5 per cent, the rise in average earnings, or inflation. The policy is expected to deliver another 4.8 per cent boost to payments next April, pushing up the costs of the state pension again.

As the Government considers how to finance the state pension and other benefits, the latest unemployment figures show the rate increased to 5 per cent in the three months to September. Peter Gallanagh, CEO of accounting services group Azets UK, said: "A rise in unemployment, combined with stalled wage growth, could weaken the tax base - particularly income tax and National Insurance receipts.

"That creates increasing fiscal tension at a time when state pension and benefit spending is under pressure from demographic change and inflation. Stabilising employment levels is therefore not only an economic priority but a fiscal one."

Labour sought to raise tax revenues by increase employers' National Insurance from 13.8 per cent to 15 per cent, from April 2025. But there have been concerns this move could lead to employers making redundancies or deciding not to hire new people as their costs of taking on an employee have gone up.

Business are being more cautious

Frances Lewis, partner at law firm Osborne Clarke, said: "The latest rise in unemployment is a reminder of how sensitive the UK labour market is to changes in employment taxation.

"When the cost of hiring goes up, businesses inevitably become more cautious - and that feeds directly through to job creation. Changes to employment taxation can also affect whether workers are paid through payrolls and can lead to an increased use of self-employment alternatives such as freelancing and contracting.

"The Government faces a difficult balancing act: increasing National Insurance contributions may raise revenue in the short term, but if it discourages hiring, it risks eroding the very tax base that it relies on. Stability and predictability in employment taxes are what give businesses the confidence to invest and grow."

Chancellor Rachel Reeves will set out her latest economic and fiscal policies at the Autumn Budget, set for November 26. This is usually when the triple lock is confirmed for next April's increase.

Asked how the latest unemployment figures could affect the Government's plans, Mr Gallanagh said: "The data will place further pressure on the Chancellor to prioritise measures that support job retention and business investment. If confidence continues to slide, the risk of a deeper slowdown increases.

"Targeted relief on the cost of employing staff - for example, adjustments to employer National Insurance - could help protect jobs and stimulate hiring. Clearer long-term commitments on growth-focused tax incentives will also be important to unlock business investment that has been paused."