Yesterday, Britain was dealt further unfortunate economic news. A new analysis from the Item Club estimates that a quarter of a million people could lose their jobs by the middle of next year, potentially creating an unemployment crisis. This is, sadly, realistic. The British economy had already lost 266,000 jobs in the year up to December 2025, before the Iran war even began. While all eyes are on the Peter Mandelson scandal for now, history tells us that it is rising unemployment which is more likely to be terminal for Keir Starmer than any dodgy Labour associate.
There is a reason why the (incorrect) trope that every Labour government leaves office with unemployment higher than when it entered office is so powerful. Job crises are awful for any government, and lead to not just economic but social and health problems. But for Labour, the clue is in the name. The party is so historically and spiritually focused on jobs as a measure of political success that any failure here reflects particularly badly. For Starmer’s Labour, repeated geopolitical shocks combined with fragile economic foundations mean that this is a very real possibility. Yet the factors leading to this particular potential unemployment crisis are not completely out of Labour’s hands. In this, as in so many areas, the Government has shown a high level of complacency.
This false sense of security was based on the comforting tale that Britain has been a job-creating machine. Cheap credit and billions in untargeted tax reliefs, such as the Employment Allowance, fueled hundreds of thousands of insecure jobs in sectors such as hospitality and retail. Alongside over a million extra jobs in health and social work, Britain has created a jobs market that is built on sand. Any knock to consumer confidence or rising costs for businesses would leave hundreds of thousands of workers exposed.
It was this complacency which led Chancellor Rachel Reeves to increase employer National Insurance contributions as well as the National Minimum Wage, without recognizing the fragility of the jobs market. As a result, the Resolution Foundation says the country is now experiencing a “mild zombie apocalypse” as unsustainable firms close down and jobs disappear. This is welcome, to some extent, as Britain does need some creative destruction to shift employment to higher productivity and export-earning sectors. However, the Resolution Foundation has also found that “we’re not seeing a wave of new firms starting up to absorb those workers. Hiring at expanding firms isn’t (yet) big enough to pick up the slack.” The UK is seeing destruction, but not much creation.
The British Industrial Competitiveness Scheme (BICS), which was detailed last week by the Government, is a perfect encapsulation of this. This scheme will provide £600 million a year to cut energy bills for 10,000 companies by 25%, or around £60,000 a year per firm. This is using a peashooter to take down an elephant when 40% of businesses say they are cutting back investment due to rising costs, including energy prices.
Instead of performative policies such as these, the Labour needs to throw the kitchen sink at creating and protecting decent, high-productivity jobs like those in manufacturing. Expanding BICS to cover all manufacturing sectors and increasing the support available would be a good start. The National Wealth Fund’s annual deployment of capital should be doubled from its current £4 billion a year and its remit expanded to cover all firms that have export potential, not just a few fashionable sectors.
If these policies were enacted, the Government might stand a chance of emerging from the jobs crisis with some of its political dignity intact. The necessity of bold action is obvious. Labour is hemorrhaging voters in the Red Wall, and any increase in unemployment in these areas will further alienate communities that feel like the party has given up on its traditional base. The Greens are poised to exploit any uplift in youth unemployment, driving a wedge between Starmer’s party and younger voters who were previously a source of electoral strength.
Ultimately, the political consequences depend on the Government’s next move. The Prime Minister has said that he believes in “active government”, and the growing jobs crisis will show whether or not this is true. If he can galvanize Labour to act, then this could be what makes his time in No. 10. If not, he will have more or less sealed his own political fate.