Spring Statement: What rising unemployment forecast means for employers

The Spring Statement was billed as a forecast update rather than a policy set-piece, but the labour market has become the headline businesses cannot ignore. The Office for Budget Responsibility (OBR) now expects unemployment to peak at 5.3% in 2026, as growth cools and labour market conditions “continue to loosen”.

That warning lands as the latest official data already points the same way. The Office for National Statistics (ONS) put the UK unemployment rate at 5.2% in October to December 2025, with the claimant count at 1.691 million in January 2026. For younger workers, the share of 16 to 24-year-olds not in education, employment, or training (NEET) stood at 12.8% in October to December 2025.

In Parliament, Chancellor Rachel Reeves said the government would not “leave an entire generation of young people behind”, pointing to reforms to “prioritise young people” in apprenticeships and to the £820 million Youth Guarantee, which she said will provide employment support and a guaranteed job. A Department for Work and Pensions announcement in December said almost one million young people would benefit from a £820 million package, including 350,000 new workplace opportunities and a guaranteed jobs scheme rolling out from spring 2026.

The question for employers is whether those programmes can offset a rising cost base and an increasingly complex employment landscape. From 1 April 2026, the National Living Wage for those aged 21 and over increases to £12.71 an hour, while the 18 to 20 rate rises to £10.85, and the 16 to 17 and apprentice rates rise to £8.00. The Low Pay Commission has also argued that minimum wage upratings are one factor in pay dynamics, alongside inflation expectations, productivity growth, and labour market tightness, while noting that the youth labour market has weakened over the past year.

Alongside wage floors, the compliance landscape is shifting. The Employment Rights Act 2025 received Royal Assent in December, and implementation will roll through 2026 and 2027. Acas has warned that most changes have not happened yet, and that employers should track timelines as guidance updates and secondary legislation follow.

This mix of higher wage rates, softer demand conditions, and incoming employment law changes is driving a more anxious reading of the Spring Statement among some business advisers. Neill Pemberton, partner and head of commercial property at Goughs Solicitors, said: “It is profoundly disappointing that today’s Spring Budget, just announced by the Chancellor, has not heeded industry concerns about the minimum wage’s impact on jobs, particularly for young people.”

He added: “The Government is hiking up the price of employment. Employers look for cheaper alternatives. Many continue to explore offshoring, outsourcing, or accelerating AI deployment, to bring that price down.”

Amber Ballans, solicitor and employment law specialist at Goughs, argued that skills-focused interventions are more effective than wage mandates. “I generally favour fewer things mandated and more things curated. I want to see the Government focus more on what works for both the employer and the employee: skills,” she said, pointing to training routes such as apprenticeships as a more durable way to widen access to work.

From the HR profession, the response has been more conditional than combative, with a focus on pathways and implementation. Ben Willmott, head of public policy at the CIPD, said: “Against an uncertain geopolitical backdrop, it’s critically important that the Government creates conditions that improve confidence and stability for businesses to deliver job creation and skills development.” He welcomed the focus on young people, but called for “bold action”, including an Apprenticeship Guarantee for 16 to 24-year-olds. He also urged government to consider whether planned wage uplifts and Employment Rights Act measures “don’t act as a further headwind to job creation”, arguing that meaningful consultation, a communications campaign for employers, and adequate resourcing for Acas would be critical, especially for smaller businesses.

The Institute for Employment Studies framed the challenge as system-wide. Naomi Clayton, chief executive at the Institute for Employment Studies, said: “Today’s Spring Statement underlines just how urgent it is to step up reform of our employment support system.” Citing the OBR forecast, she added: “With revised unemployment figures expected to peak at over 5.3% this year, according to the OBR, the UK is facing clear and persistent labour market challenges that demand a more ambitious and inclusive approach to helping people into work.” Clayton argued that widening access to “effective, personalised employment support” would be essential, particularly as youth unemployment hits its highest rate in a decade.

For business leaders, the labour market story now sits at the intersection of costs, capability, and capacity. Wage floors are rising from April. Employment law change is coming in waves through 2026 and 2027. At the same time, unemployment is forecast to rise, and a generation of young people is struggling to gain a foothold. The Spring Statement’s direction of travel is clear enough. The test, as employers see it, is whether delivery keeps pace with the labour market’s turn.